Both Sides of the Table

FEBRUARY 15, 2016

There is much talk these days that startup valuations have decreased and may continue to do so and that the amount of time it takes to fund raise may take longer. The earlier the round, the less capital you need and the more reasonable your valuation the less time that is needed generally to raise capital. Only you know.

Burn Rate 150

Burn Rate Cap Table Valuation Software Review 150

abovethecrowd.com

FEBRUARY 24, 2015

An unprecedented 80 private companies have raised financings at valuations over $1B in the last few years. The size of these companies’ private valuations may be similar to a traditional public company valuation, but that is where the similarities begin and end. This was the recent case with the Box.com IPO.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

Both Sides of the Table

FEBRUARY 14, 2016

Valuing any company can be difficult because it requires a degree of forecasting future growth & competition and ultimately the profits of the organization. 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! Mostly, no.

Valuation 150

Valuation Down Round Startup Later Stage 150

ReadWriteStart

SEPTEMBER 2, 2011

As Mark Suster pointed out yesterday on his blog , he's seeing more and more cases where "entrepreneurs are working hard to make sure they have as many VC names and famous angels on their cap table for signaling value." He explains five problems with this and I couldn't agree more.

Cap Table 125

Cap Table Term Sheet Liquidation Preference Technical Review 125

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. How will the lead determine a value? Him: On metrics.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

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

Startup Professionals Musings

JANUARY 27, 2012

The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount. Liquidation preference. Seat on the board.

Term Sheet 223

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

The Equity Kicker

MARCH 3, 2016

Here’s the headline data on the deals: Mean valuation: $4.4bn. Median valuation: $1.6bn. 35% of companies had valuations in the $1.0-1.1bn All of the deals had a liquidation preference of 1x or more. However, few of the deals went beyond a simple 1x non-participating preference share.

Liquidation Preference 60

Liquidation Preference Participating Preferred Valuation IPO 60

The Equity Kicker

JUNE 28, 2013

Simply put, a company should aim to get to exit raising only a small fraction of the value that it hopes to exit for. Otherwise the investors won’t make the multiple on their investment that they want and after liquidation preferences are paid the amount left for the entrepreneur may well also be disappointing.

Liquidation Preference 116

Liquidation Preference Valuation Portfolio Operations 116

Startup Professionals Musings

SEPTEMBER 14, 2010

The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount. Liquidation preference. Seat on the board.

Term Sheet 227

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

K9 Ventures

JUNE 5, 2015

Low supply of companies with traction drove the valuations and deal sizes up. Valuations are rising to match. A typical seed round valuation may be $6M pre, raising $2M for an $8M post, or even as high as an $8M pre, raising $2M for a $10M post. The risk here is what I refer to as the curse of over-capitalization. The Epilogue.

Seed Stage 48

Seed Stage Venture Capital Early Stage Valuation 48

abovethecrowd.com

APRIL 20, 2016

In February of last year, Fortune magazine writers Erin Griffith and Dan Primack declared 2015 “ The Age of the Unicorns ” noting — “Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists.” Next came Rolfe Winkler’s deep dive “ Highly Valued Startup Zenefits Runs Into Turbulence. ”

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Growthink Blog

JANUARY 24, 2011

The answer depends on how and what rights are defined in the preferred stock. One very popular "preferred right" or "preference" that adds very significant value to outside investors and is common in venture capital investments is a liquidation preference. read more. read more.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

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. “We

Liquidation Preference 70

Liquidation Preference Burn Rate Balance Sheet .Net 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. There’s a difference between companies wanting to hide valuations and investors doing so. I prefer percentages (e.g.

Stock Options 294

Stock Options Stock Valuation Liquidation Preference 294

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

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. Angels/Seed Funds v.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

Gust

OCTOBER 17, 2011

The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount. Liquidation preference. Seat on the board.

Term Sheet 158

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

www.mattbartus.com

DECEMBER 9, 2012

How to pump up your VC valuation. Let’s say you receive a term sheet for a $1 million investment at a $3 million fully diluted pre-money valuation, and you’re kind of disappointed. One possibility is to negotiate a higher valuation and offer warrants (i.e., Home About Matt Client references Contact. 10,000,000.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Scott Edward Walker

APRIL 22, 2012

This part 2 will address the economics of a convertible note seed financing and the three key economic terms: (i) the conversion discount, (ii) the conversion valuation cap and (iii) the interest rate. What is a Conversion Valuation Cap? Specifically, a cap is a ceiling on the value of the startup (i.e.,

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

The Equity Kicker

DECEMBER 30, 2013

Another example of optionality is cash held by a disciplined patient value investor with the temperament to not buy until Mr. Market is fearful. The corollary of this is that when valuations get too high, or the amount of cash raised gets too high then the asymmetry between the upside and the downside disappears.

Finance 129

Finance Liquidation Preference Valuation Harvest 129

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. But others will teach you the value of a little preparedness and skepticism. And, broadly speaking, that is correct.

Term Sheet 48

Term Sheet Institutional Investors Technical Review Lead Investor 48

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

www.readwriteweb.com

DECEMBER 29, 2011

As Mark Suster pointed out yesterday on his blog , he's seeing more and more cases where "entrepreneurs are working hard to make sure they have as many VC names and famous angels on their cap table for signaling value." He explains five problems with this and I couldn't agree more.

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

Hunter Walker

NOVEMBER 23, 2015

Sometimes they’re more practical – I did a long one on liquidation preferences and how they inflate valuations, right before Sam Altman wrote his blog piece on the same thing. The core value of a good leader is humility. HW: You’ve been building companies and teams for a while now.

Engineer 48

Engineer Liquidation Preference AJAX IPO 48

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

The Equity Kicker

AUGUST 1, 2012

between them, making the aggregate exit value of these acqui-hires 4.2x, which tells us that if the investors on average had a 24% stake they would have broken even on these deals. Lightbox and Karma had raised money $5.7m Whichever way you look at it the conclusion is the same – acqui-hire is not a great exit strategy for investors.

San Francisco 110

San Francisco Hiring Liquidation Preference Aggregator 110

ithacaVC

DECEMBER 13, 2013

The share price is calculated by taking the pre-money valuation and dividing it by the number of shares outstanding pre-money. So Share Price (SP) = Pre-Money Valuation (PMV) / Shares Outstanding (SO). That is normal for a pre-money % as it will drop down to about 10% post money depending on size of round and valuation.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Board Effect

MAY 10, 2019

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. Dilution: Equity Value & Percentages. Liquidation Preferences.

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Both Sides of the Table

NOVEMBER 4, 2009

Let’s assume that the company raised it at a normal VC valuation, which means it gave up 33% of the company and thus $5 million / 33% = $15 million post-money valuation. BTW, this ignores liquidation preferences which actually mean you’ll earn less. OK, you would own 0.25% of the stock. you won the lottery).

Stock Options 418

Stock Options Stock Liquidation Preference Option Pool 418

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

Startup Company Lawyer

JANUARY 9, 2011

“ Seth points out that “the convert cap reflects a premium to the current fair market value of the business. Tweaking convertible debt so that common stock (instead of preferred stock) is issued for the conversion discount in order to limit liquidation preference overhang.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

Startup Company Lawyer

JANUARY 31, 2011

Optional maturity conversion : into Series AA Preferred Stock based on a $5M valuation. Optional change of control/IPO conversion : into common stock at the lesser of (A) fair market value (based on change of control or IPO), or (B) $5M valuation. (Once again, I don’t know how to get a better deal than this.).

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

K9 Ventures

NOVEMBER 21, 2011

You raised a Series A round, a Series B round, and this year are just about to raise a big Series C round at a great valuation. If they’re giving up control, that should come in exchange for having some recognition of the value they have created so far. VCs invest in a portfolio of companies.

Founder 87

Founder Common Stock Preferred Stock Stock 87

K9 Ventures

NOVEMBER 21, 2011

You raised a Series A round, a Series B round, and this year are just about to raise a big Series C round at a great valuation. If they’re giving up control, that should come in exchange for having some recognition of the value they have created so far. VCs invest in a portfolio of companies.

Founder 84

Founder Common Stock Preferred Stock Stock 84

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. These same constituents think about the overall company value in terms of dollars. Second, you need to only negotiate in terms of percentages (versus dollar value).

Merger 53

Merger Institutional Investors Liquidation Preference Preferred Stock 53