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. So they recapitalize the company.
Feld Thoughts
JUNE 2, 2015
If the entrepreneur knows this and is using it proactively so they get a higher post-money valuation, that’s fair game. There are also some law firms whose standard documents are purposefully ambiguous to give the entrepreneur theoretical negotiating flexibility in the first priced round.
Feld Thoughts
FEBRUARY 9, 2016
There are three things that will mess you up in the long run: Too much liquidation preference : My simple rule of thumb is that if you’ve raised more than $25m and your liquidation preference is greater than 50% of your post money valuation, you have too much liquidation preference.
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