Both Sides of the Table

MAY 13, 2013

Let’s assume $2 million in seed money. If the money comes from professional investors it usually has a “liquidation preference” meaning that their money comes out before the founders or common stock. (If That’s why liquidation preferences exist – downside protection.

Liquidation Preference 357

Liquidation Preference Early Stage Retention Lock-up Period 357

Both Sides of the Table

SEPTEMBER 2, 2009

In my first company I had to raise money in April 2001 or die. I took money with a 3x participating preferred liquidation preference with 8% compounded interest annually. Coupled with my participating preferred from 1999 and 2000 I had more than $55 million of liquidation preferences.

Founder 329

Founder Liquidation Preference Term Sheet Participating Preferred 329

Feld Thoughts

JULY 14, 2015

A company raises $1m of seed money from angels in a convertible note with a $6m cap. Assuming equity is raised at or above that cap, the total dilution, before the new money, is 16.6% (equivalent to an equity financing of $1m at a $6m post money valuation. Here’s the scenario. Sure – it happens.

Recapitalization 70

Recapitalization Pre-Money Valuation Post-Money Valuation Angel Investor 70