Steve Blank

MARCH 16, 2016

Risk capital takes equity (stock ownership) in your company instead of debt (loans) in exchange for cash. A liquidity event means that the equity (the stock) you sold your investor can now be converted into cash.) Currently M&A is the most likely path for a startup to achieve liquidity.

Liquidity Event 120

Liquidity Event Founder Liquidation Preference Venture Capital 120

Both Sides of the Table

SEPTEMBER 6, 2010

Options are gravy - I lived through the first dot com era where we used stock options as a recruiting tool. We give out stock options. Do the harder work and convince them to join anyways – without the stock option bravado. ** Unless you really are Mark Pincus, Mark Zuckerberg, Ev Williams or similar. Then go ahead.

Stock Options 294

Stock Options Stock Valuation Liquidation Preference 294

Growthink Blog

JANUARY 24, 2011

The question is whether they need to issue common or preferred stock. The answer depends on how and what rights are defined in the preferred stock. The liquidation preference means what is sounds - namely that preferred stock holders with this right get all of their money back (i.e.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

Both Sides of the Table

FEBRUARY 23, 2015

This is because this “liquidation preference” gets returned to investors before you see any money – restricting the executive outcomes in mid-sized exits. In Ian’s post he rightly points out that stepping into a role with $15 million in paid-in capital that has already been spent can be a problem.

Technical Review 150

Technical Review Liquidation Preference Silicon Valley IP 150

Both Sides of the Table

JULY 25, 2011

Founders don’t often think about “primary&# stock vs, “fully diluted&# stock in terms of voting rights. To this day I’m still surprised how few CEOs really understand the differences between 2x liquidation preference and a liquidation preference with a 2x cap. I never did.

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

Both Sides of the Table

MAY 30, 2015

When you do a convertible note with a cap that converts into the next round of funding one of the unintended consequences is that if you’re successful and raise at a larger price than your cap the early angels often get “multiple liquidation preferences” on their dollars in.

Liquidation Preference 150

Liquidation Preference Ratchet Angel Investor Entrepreneur 150

Both Sides of the Table

MARCH 1, 2016

This strangely may come even more quickly in the more successful funds, because any funds (ours included) who still hold some public stock from a recent IPO will likely be seeing write-downs sooner due to the immediacy and transparency of public stocks being repriced. The data itself bears out some of these fears.

Venture Capital 150

Venture Capital LP Silicon Valley Marketing 150

Both Sides of the Table

SEPTEMBER 5, 2012

Because convertible debt deals often have both a ‘full ratchet’ and often have ‘multiple liquidation preferences’ “ Yup. Can you imagine investing in the stock market where your price was determined at a future date and the better that company performed the HIGHER the price you paid for that investment.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Both Sides of the Table

APRIL 14, 2010

That means that the likely have a minimum of $15 million in liquidation preferences. It will usually be higher because the liquidation preference has a dividend so if the deal is long in the tooth assume that the liquidation preference might be $20-22 million. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Both Sides of the Table

MAY 13, 2013

A couple of tech giants throw millions around in either cash (for which they have hoards) or part with some publicly traded stock. 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

Liquidation Preference 357

Liquidation Preference Early Stage Retention Lock-up Period 357

Berkonomics

JULY 23, 2020

Does the board declare dividends upon the preferred stock invested in order to increase the amount paid out to the preferred – at the expense of the common – shareholders, which usually includes the founder(s)? Conflicts of interest with preferred investors. Investor notes vs. stock late in the game.

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62

Both Sides of the Table

JANUARY 21, 2010

Forget to get around to setting up that Employee Stock Option Plan and want to be able to give the early guys their options at a low strike price? They usually ask for warrants (basically like a stock option) in exchange for taking a deferred fee. You need to know how liquidations preferences work.

Southern California 318

Southern California Silicon Valley IP Stock Options 318

Gust

SEPTEMBER 17, 2014

Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago. Stock Option plans. Him: Not so good. And so forth.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Startup Company Lawyer

MARCH 14, 2010

To differentiate it from typical “Series A&# preferred stock, which comes with certain expectations with regard to rights. There is no real rule to what a particular series of preferred stock is called. a couple of million dollars), and (iv) is only investing a small amount (i.e. under $500K). Legal fees.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Startup Professionals Musings

SEPTEMBER 26, 2015

For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. Type of stock assigned to the investor. Investors typically demand preferred stock, to give themselves certain voting and liquidation privileges over later shareholders.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Feld Thoughts

FEBRUARY 9, 2016

Once again, as we find ourselves in the middle of a significant public market correction, especially around technology stocks, there’s an enormous amount of noise in the system, as there always is. I suffered through the next financing after implementing a complex structure, or a sale of the company, or a liquidation.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Gust

NOVEMBER 15, 2012

Parts of the answer are that (a) there are enormous regulatory requirements relating to secondary markets, and (b) there are no analysts tracking private company stocks.

Seed Stage 131

Seed Stage Hockey Stick Cap Table Liquidation Preference 131

Tim Keane

JANUARY 12, 2010

Term-sheets for preferred stock offerings are designed to protect the investor in case things don’t go as well as planned. Second a liquidation preference and a participation.   Say I invest $1MM in a company and receive 40% of the stock.   First , dividends.   I’ve never seen it in practice.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Startup Professionals Musings

JANUARY 27, 2012

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Venture capitalists and later round investors like the preferred convertible shares. Liquidation preference. But the lead Angel would certainly ask to be given a seat. Define equity type.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 223

Startup Professionals Musings

SEPTEMBER 14, 2010

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Venture capitalists and later round investors like the preferred convertible shares. Liquidation preference. But the lead angel would certainly ask to be given a seat. Define equity type.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

genylabs.typepad.com

SEPTEMBER 24, 2011

I often take stock in lieu of cash. I have a file drawer full of worthless stock certificates and I continue to add to it. Not all start-up stock is created equally. what kind of stock you are getting. where your stock sits in the liquidity preference stack. what kind of stock you are getting.

Equity 40

Equity Technical Review San Jose Stock 40

Both Sides of the Table

NOVEMBER 4, 2009

OK, you would own 0.25% of the stock. Now … these are stock options and not restricted stock so you’ll likely be taxed at a long-term capital gains rate. BTW, this ignores liquidation preferences which actually mean you’ll earn less. Stock vests for 4 years. you won the lottery).

Stock Options 418

Stock Options Stock Liquidation Preference Option Pool 418

ithacaVC

APRIL 25, 2014

The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). The larger the preferred stock liquidation preference the larger the impact of participating preferred. The option strike price in cell J1 is arbitrary.

Cap Table 79

Cap Table Preferred Stock Pre-Money Valuation Liquidation Preference 79

Scott Edward Walker

APRIL 9, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? In the context of a seed financing, the debt typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing. Why Can’t a Startup Issue Shares of Common Stock to Investors?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Feld Thoughts

JUNE 2, 2015

Or, if you just want the paragraph, it’s: “If this note converts at a price higher than the cap that you have been given you agree that in the conversion of the note into equity you agree to allow your stock to be converted such that you will receive no more than a 1x non-participating liquidation preference plus any agreed interest.”.

Liquidation Preference 70

Liquidation Preference Cap Table Angel Investor Post-Money Valuation 70

Feld Thoughts

SEPTEMBER 9, 2015

Some will demonstrate strategically justifiable metrics and have fantastic ‘up round’ exits; others may see liquidation preferences kick in which will negatively impact founders and employees; others may fulfill the adage “IPO is the new down round” , which has been the case for more than half of the public companies on our list.

Liquidation Preference 70

Liquidation Preference Burn Rate Balance Sheet .Net 70

ithacaVC

JUNE 29, 2018

This typically results when the company has raised a lot of money and the preferred stock liquidation preference would absorb an out sized portion of the exit proceeds. It can also result from straight forward dilution. Regardless, I am a big fan of carve out plans.

Management 40

Management Liquidation Preference Preferred Stock Dilution 40

Scott Edward Walker

APRIL 22, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? As discussed in part 1 , in the context of a seed financing, a convertible note is a loan that typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

Gust

OCTOBER 17, 2011

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Venture capitalists and later round investors like the preferred convertible shares. Liquidation preference. But the lead angel would certainly ask to be given a seat. Define equity type.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 158

VC Cafe

OCTOBER 31, 2022

This is largely due to several major stock market crashes and global economic uncertainties. Venture-capital firms are jumping into the stock market, buying up battered shares in publicly traded tech companies at a time when they are investing less in the startups that have long been their focus.

Founder 173

Founder Technical Review Down Round Liquidation Preference 173

Up and Running

AUGUST 17, 2015

C Corp versus LLC, non-competes, liquidation preferences, preferred versus common stock, and so on). While there is a wealth of information available online, it’s all a lot more tangible when you have case law and real life anecdotes attached to these considerations.

Entrepreneur 60

Entrepreneur Cofounder Angel Investor eCommerce 60

Both Sides of the Table

SEPTEMBER 28, 2013

The don’t understand VC liquidation preferences or multiple return expectations. So the tech team departed en masse to find the next great stock option scheme to make their big bucks. You take the meeting but you’re not really pursuing it. But staff can’t make the delineation in their heads.

Startup 417

Startup Dilution San Diego Stock Options 417

Berkonomics

AUGUST 29, 2013

Does the board declare dividends upon the preferred stock invested in order to increase the amount paid out to the preferred – at the expense of the common – shareholders, which usually includes the founder(s)? There are a number of questions a distressed sale brings to mind.

Delaware 66

Delaware Liquidation Preference Liquidity Event Preferred Stock 66

ithacaVC

DECEMBER 13, 2013

They are typically pretty simple: (i) shares owned by founders and (ii) shares authorized for issuance in a stock option pool, some of which may be issued to employees already and some of which will be available for future issuance. So let’s talk about the components of the 2,456,758 share number. I have posted on this previously.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

ithacaVC

SEPTEMBER 20, 2011

In “VC world” Rule 409A is best known for providing a safe harbor for private company valuations, and in particular the setting of strike prices for employee stock options. Here is what he told me: the board can set the stock option price and not rely on the 409A valuation safe harbor. So, here goes.

Liquidation Preference 49

Liquidation Preference Common Stock Stock Options Valuation 49

The Startup Lawyer

JULY 13, 2011

The deal documents called the preferred stock “Series Seed&# shares but after opening up the documents I quickly realized the deal terms were NOT the same as those in the well-known Series Seed document set. For example, a startup requested I review a set of financing documents produced by investor counsel.

Preferred Stock 68

Preferred Stock Liquidation Preference Participating Preferred Stock 68

K9 Ventures

NOVEMBER 21, 2011

If there is one piece of advice I would give to the founders of BST, it is to consider selling a part of their personal stock in the company at that stage. 3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity.

Founder 87

Founder Common Stock Preferred Stock Stock 87