The Startup Lawyer

JANUARY 10, 2012

The amount of the liquidation preference is usually expressed as a multiple, with the most common liquidation preference being “1X non-participating.” Thus, if you see greater than a 1x preference and/or a ‘participating’ preference attached, know that your investor is just negotiating on price.

Liquidation Preference 73

Liquidation Preference Pre-Money Valuation Participating Preferred Preferred Stock 73

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. a couple of million dollars), and (iv) is only investing a small amount (i.e. under $500K). What rights does the Series Seed have? Ted Wang explains most of the highlights of the documents.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

The Startup Toolkit

NOVEMBER 4, 2011

The financials immediately jump out when we talk about term sheets: what’s the valuation? Next, we check that we’re safe from any particularly onerous terms like participation preferred. What’s the dilution? Can I make those numbers bigger and smaller, respectively? Looks good.

Term Sheet 31

Term Sheet Dilution Participating Preferred B2C 31

The Equity Kicker

JANUARY 25, 2016

On Friday it seemed like everyone in the venture capital industry was again reading about market turmoil, this time the news is that angel investors are pulling back and valuations taking a hit. The best startups capture all the returns so focusing too much on entry valuation is a mistake. I read it too, because it’s a big deal.

Venture Capital 60

Venture Capital Angel Investor Startup Participating Preferred 60

Both Sides of the Table

APRIL 14, 2010

Once you cross the threshold where their percentage ownership would be worth more than the value of their preference they “convert&# their preferred stock into common stock and take their proceeds pari passu (along side and on the same terms as you) with the common stock holder. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

The Startup Toolkit

NOVEMBER 4, 2011

The financials immediately jump out when we talk about term sheets: what’s the valuation? Next, we check that we’re safe from any particularly onerous terms like participation preferred. What’s the dilution? Can I make those numbers bigger and smaller, respectively? Looks good.

Term Sheet 20

Term Sheet Dilution Participating Preferred B2C 20

ithacaVC

DECEMBER 14, 2011

Sometimes, after getting back the LP, the preferred holder then converts to common and gets its prorata share of proceeds left after all LP has been paid (this is called participating preferred). One final background point, a “liquidation event” is a sale of the company and typically NOT an IPO. It might be.

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

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

Feld Thoughts

FEBRUARY 28, 2023

In the USA, the conversion right ensures that holders of preferred shares are not disadvantaged compared to holders of common shares; in Germany, this legal consequence must result directly from the structure of the preferred shares. The tax framework and valuation issues are particularly complex and not very employee-friendly.

Germany 165

Germany Liquidation Preference Option Pool Advisory Board 165

Professor VC

JULY 25, 2013

Yes, there are a number of cases in the middle where having a senior or participating preference does make a difference in liquidation proceeds, but I argue that it does very little to overall returns in a diversified portfolio. Unfortunately, not everyone follows the KISS principle. Thank you sir, may I have another!"

Term Sheet 46

Term Sheet Silicon Valley Syndicate Syndication 46

Altgate

DECEMBER 18, 2008

Let’s recap how expensive a 3x liquidation preference really is. Say you raise $8MM at $17MM pre-money ($25MM post) with a 3x participating preferred. When you throw in the $5MM of dividends that have accrued on the preferred, then Common shareholders will get approximately ZERO from this sale for $50MM.

Liquidation Preference 31

Liquidation Preference Venture Capital Post-Money Valuation Participating Preferred 31

Startup Company Lawyer

FEBRUARY 21, 2010

Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless. If you can’t figure this out yourself, you should probably build a liquidation preference spreadsheet to model how liquidation preferences work depending on M&A transaction value.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

www.payne.org

SEPTEMBER 22, 2011

Ive seen companies with $75m of preference, and very frustrated common stockholders that realize the company needs to get acquired for $100m or more for them to start making any money. (To To keep things simple, Ive omitted many details for preferred stock, such as "participating preferred" mechanisms.

Equity 56

Equity Employee Vesting Preferred Stock 56

thinkspace.com

SEPTEMBER 7, 2012

Is the preference structure for preferred shareholders at the startup you work at Standard Preferred or Participating Preferred? already some initial funding does the company already have a valuation? What type of trigger clause do you have in your startup options agreement? link] Peter Chee.

Equity 62

Equity Employee Founder CTO Hire 62

Scott Edward Walker

NOVEMBER 26, 2017

For example, one investor may propose Series Seed Preferred Stock and another investor may agree to a SAFE ; or, in a larger financing, one investor may be pushing hard for participating preferred and a 25% option pool and another investor may agree to the same valuation, but straight preferred and a smaller pool.

Term Sheet 63

Term Sheet San Francisco Founder Investment Bankers 63

Professor VC

JUNE 6, 2016

I can just picture Mr. Rogers saying "Children, can you say participating preferred stock with an uncapped 3x liquidation preference and a full ratchet?" Some are able to offer better terms (pro-rata rights, lower valuation caps) than an individual could get. Well, maybe so after watching his middle finger salute.

Syndicate 28

Syndicate Syndication Cap Table Ratchet 28