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. Him: But then what if people don’t want to pay that price?

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

ReadWriteStart

SEPTEMBER 2, 2011

So in your first few rounds, try to raise money from as few people as possible and make sure they really will help. Including things like liquidation preferences impact both future rounds and ultimate liquidity to why VCs ask to expand an option pool before investing as part of their term sheet.

Cap Table 125

Cap Table Term Sheet Liquidation Preference Technical Review 125

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

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. Almost certainly the startup would have raised some capital.

Liquidation Preference 357

Liquidation Preference Early Stage Retention Lock-up Period 357

Feld Thoughts

FEBRUARY 9, 2016

And, rather than rational and helpful thoughts for entrepreneurs, it often brings out the schadenfreude in even the most talented people. I’ve seen every imaginable type of liquidation preference structure, pay-to-play dynamic, preferred return, ratchet, share/option bonus, option repricing, and carveout.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Altgate

DECEMBER 18, 2008

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← Holiday Cards Year End Management Changes → The 3X Liquidation Preference Is Back! Let’s recap how expensive a 3x liquidation preference really is. What’s crazy?

Liquidation Preference 31

Liquidation Preference Venture Capital Post-Money Valuation Participating Preferred 31

K9 Ventures

JUNE 5, 2015

So although the symptom was that it felt tougher to raise Series A, the cause was a little deeper than most people realized. Low supply of companies with traction drove the valuations and deal sizes up. In addition, the competition for and the cost of hiring people, especially in the San Francisco Bay Area, has gone up dramatically.

Seed Stage 48

Seed Stage Venture Capital Early Stage Valuation 48

Startup Company Lawyer

MARCH 14, 2010

The primary rights in these documents, ranked in order of importance in my opinion are: Non-participating preferred liquidation preference. The liquidation preference would not apply in this situation, and any distribution to stockholders would trigger the dividend preference. Dividend preference.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Both Sides of the Table

SEPTEMBER 6, 2010

We set our sites on our IPO price and then worked back to our current valuation and showed potential employees what we thought they could earn (with all legal caveats) if the company was successful. We obviously attracted the wrong people for the wrong reasons and this led to a lot of disappointment. I think they believed it, too.

Stock Options 294

Stock Options Stock Valuation Liquidation Preference 294

Both Sides of the Table

SEPTEMBER 28, 2013

It’s so much scarier than most people admit – even to themselves. But I’m working on a large team of people trying to figure out how to make micro improvements to a paid-search algorithm. A cautious person wouldn’t try to pry people out of Twitter right before their IPO to” join my cause!!”

Startup 417

Startup Dilution San Diego Stock Options 417

Up and Running

MAY 21, 2015

All the other sharks typically make a traditional equity investment; for example they’ll invest $100,000 at a $1,000,000 business valuation, and take 10 percent of the business. They generally also get additional rights that common shareholders don’t get, such as anti-dilution protection, and liquidation preference (discussed further below).

Covenant 60

Covenant Liquidation Preference Ratchet Dilution 60

Both Sides of the Table

NOVEMBER 4, 2009

Yet I often hear people asking about these types of opportunities express their questions to me whether I think this company is going to be a big hit. It’s clear to me that many people confuse learn with earn. Simple math would have solved that but people rarely do the calculations or think about it. It was 1999.

Stock Options 418

Stock Options Stock Liquidation Preference Option Pool 418

www.readwriteweb.com

DECEMBER 29, 2011

So in your first few funding rounds, try to raise money from as few people as possible and make sure they really will help. This includes things like how liquidation preferences impact future rounds and ultimate liquidity, to why VCs ask to expand an option pool before investing as part of their term sheet.

Cap Table 47

Cap Table Term Sheet Liquidation Preference Technical Review 47

Scott Edward Walker

APRIL 9, 2012

Part 2 will discuss the two most significant issues for founders in connection with the issuance of convertible notes: (i) the valuation cap and (ii) the discount (and how they interrelate). A valuation of the startup is thus unnecessary; and, if there is no valuation, there are no problems of dilution, taxes and option pricing.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

The Equity Kicker

AUGUST 1, 2012

This analysis assumes there was no participating liquidation preference and lumps together companies that have raised money with those that haven’t, but I think it is fair to guess that in aggregate the investors in these companies didn’t get what they set out for. Lightbox and Karma had raised money $5.7m

San Francisco 110

San Francisco Hiring Liquidation Preference Aggregator 110

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. If the company conducts an outside independent valuation, then, under 409A, the burden is on the IRS to prove that the valuation was not reasonable (i.e.,

Liquidation Preference 49

Liquidation Preference Common Stock Stock Options Valuation 49

K9 Ventures

MARCH 23, 2011

Since the financing would likely happen in short order, there was no need to have a valuation cap in the note. The founders’ interest is to maximize the valuation of the company at the time of a follow-on financing, thereby minimizing founder dilution. Notes may have fewer rights associated with them, but they come with one big hammer.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

genylabs.typepad.com

SEPTEMBER 24, 2011

I wont bother going into details on start-up financing terms ( see this post for an overview of typical VC terms) except to say if you dont know and understand: the firms cap table and valuation. where your stock sits in the liquidity preference stack. what rights and preferences the founders and the other investors have.

Equity 40

Equity Technical Review San Jose Stock 40

Scott Edward Walker

AUGUST 31, 2011

They are often dealing with people with very limited or no business experience. These people need help in defining and pursuing their business goals. At what valuation and on what terms? they usually play a much larger role in the businesses being started. How should the founders divide the initial stock ownership?

Silicon Valley 45

Silicon Valley Term Sheet Liquidation Preference Redemption 45

Hunter Walker

NOVEMBER 23, 2015

” I don’t think many people know you started the company (Upstartle) that built the product (Writely) that Google bought in order to launch Docs. Sam Schillace : Well, there were a lot of people involved with that success, but it’s true that people often refer to me that way.

Engineer 48

Engineer Liquidation Preference AJAX IPO 48

abovethecrowd.com

MAY 20, 2013

There are common stock, common options, and as many as three to five different layers of preferred stock, each with a specific liquidation preference. 2) People Challenges. Private companies typically have capitalization structures that are very complex. I call this the “dueling blowfish” problem.

Merger 53

Merger Institutional Investors Liquidation Preference Preferred Stock 53

VC Adventure

AUGUST 30, 2010

Paul himself said in a March 2009 article : “When you hear people talking about a successful angel investor, they’re not saying "He got a 4x liquidation preference." " They’re saying "He invested in Google." So how is this trend bad for entrepreneurs?

Angel Investor 103

Angel Investor Early Stage Equity Valuation 103

Both Sides of the Table

FEBRUARY 14, 2016

I have been talking about my concerns about valuations for the past couple of years because, well, they’ve been rising very rapidly the past two years! ” “Mark has a vested interest in talking down valuations of startups.” Do Investors WANT Valuations to Drop? The Motive for Speaking Up. Mostly, no.

Valuation 150

Valuation Down Round Startup Later Stage 150

crowdSPRING Blog

MARCH 13, 2014

Most people ignore them – crowdspring.co/1fWp19y. Does A Billion-Dollar Valuation Buy Employee Happiness? Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. Most people ignore them – crowdspring.co/1fWp19y. ReadWrite – crowdspring.co/1ekm5xR.

Social Media 96

Social Media Small Business Design Media 96

Austin Startup

AUGUST 1, 2017

This is most clearly highlighted in the “unicorn” boom we all saw over the past few years, where founders raised very large rounds, with terms very onerous to the underlying common stock, hoping they could eventually justify billion dollar valuations to skeptical acquirers or public market investors.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

Both Sides of the Table

SEPTEMBER 8, 2012

I’m not sure why people don’t see that. It has both a “full rachet” and “multiple liquidation preferences.” Since 2009 I have been counseling people to offer discounts to the first angel investors. And no matter how rich people are – they still want a good deal.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

abovethecrowd.com

APRIL 20, 2016

One key to this population growth has been the remarkable ease of the Unicorn fundraising process: Pick a new valuation well above your last one, put together a presentation deck, solicit offers, and watch the hundreds of million of dollars flow into your bank account. By January of 2016, that number had ballooned to 229.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

thestartuplawyer.com

FEBRUARY 24, 2010

Can I remain the sole founder even though I must get people 'in" far, far more skilled and qualified than myself. Can I remain the sole founder even though I must get people 'in" far, far more skilled and qualified than myself. He obviously never launched a startup and got shafted by a co-founder.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

dondodge.typepad.com

JANUARY 15, 2011

The entrepreneur expects the company to be worth many times this valuation and so does the investor. The key is to have several VCs or investors competing for the deal to arrive at a "fair" valuation. So they will give you a pre-money valuation somewhere around the amount you raise. That is how much you should raise.

Equity 40

Equity Employee Dilution Valuation 40

Board Effect

MAY 10, 2019

If org charts are about people power , cap tables are about money power. Such metrics can include an investor’s liquidation preference, option exercise windows and expiry dates, and shareholders’ fully diluted ownership percentages. Cap tables are throughout these negotiations to model potential pre- and post-money valuations.

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Feld Thoughts

JULY 14, 2015

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. The term sheet converts all the convertible debt into a post-money valuation of $100, essentially making the convertible debt worthless. Sure – it happens.

Recapitalization 70

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

Startup Company Lawyer

JANUARY 9, 2011

Tweaking convertible debt so that common stock (instead of preferred stock) is issued for the conversion discount in order to limit liquidation preference overhang. Convertible debt with a price cap preserves the investor’s “equity&# ownership, but gives the investor extra liquidation preference.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

K9 Ventures

OCTOBER 19, 2015

So move on, recruit awesome people, build product, make your customers happy by delivering value to them and build your company by making them pay you for it. I like to focus on ideas, people, products. Marks also says that: “The truth is, the best buys are usually found in the things most people don’t understand or believe in.​”

Venture Capital 48

Venture Capital Liquidation Preference Valuation Portfolio 48

www.paulgraham.com

APRIL 28, 2010

When youhear people talking about a successful angel investor, theyre notsaying "He got a 4x liquidation preference." 2 ] When you negotiate terms with a startup, there are two numbers youcare about: how much money youre putting in, and the valuation ofthe company. The valuation determines how much stock you get.

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63

Austin Startup

APRIL 1, 2017

They’ll focus on high-level issues like valuation, liquidation preference, and board composition (# of seats), and then prematurely check out once a term sheet is signed. Independent Director as Tie-Breaker Independent directors are, arguably, the most important people on Boards of Directors.

Term Sheet 48

Term Sheet Institutional Investors Technical Review Lead Investor 48