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. Me: More dilution? A down round? And so forth.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

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. Anti-dilution protection. But some dilution is almost inevitable. Liquidation preference.

Term Sheet 227

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

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. In a standard VC term sheet there is a standard term called an “anti dilution provision” and they are in nearly 100% of deals. That’s right.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

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. Anti-dilution protection. But some dilution is almost inevitable. Liquidation preference.

Term Sheet 158

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

Tim Keane

JANUARY 12, 2010

.   At the financial level , and assuming a harvest of the investment in the company without the need for further financing, two terms stand out as driving economics: the dividend and the liquidation preference. Second a liquidation preference and a participation.   First , dividends.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

ithacaVC

DECEMBER 13, 2013

VCs in particular typically insist on a slug of available options counting in the pre-money share total as they do not want to be diluted later by the issuance of those options. On a fully diluted pre-money basis, that would mean the option pool represents 14.5% (356,758/2,456,758) of the cap table. I have posted on this previously.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Scott Edward Walker

APRIL 9, 2012

Why Can’t a Startup Issue Shares of Common Stock to Investors? In fact, many incubators like Y Combinator and TechStars are issued shares of common stock for their initial investment (usually about $20,000). Friends and family are also often issued shares of common stock. Speed, simplicity and cost.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

K9 Ventures

NOVEMBER 21, 2011

3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity. Founders typically hold Common Stock in the company, but they (obviously) want to sell the Common Stock at the same price as the Preferred price or close to it.

Founder 87

Founder Common Stock Preferred Stock Stock 87

K9 Ventures

NOVEMBER 21, 2011

3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity. Founders typically hold Common Stock in the company, but they (obviously) want to sell the Common Stock at the same price as the Preferred price or close to it.

Founder 84

Founder Common Stock Preferred Stock Stock 84

ithacaVC

MAY 1, 2013

It is ONLY once the VC’s liquidation preference is cleared that the common stock held by founders and employees is worth anything. Fiduciary duty law is well settled, and, no, directors cannot approve dilutive financings without regard to common shareholder interests. And I think that makes 100% sense.

Dividend 45

Dividend Liquidation Preference Common Stock Venture Capital 45

ithacaVC

FEBRUARY 23, 2011

The MCOP can serve a critical role as founders and other management team members are diluted down by rounds of financing or if their equity is not in the money. As the investors’ aggregate liquidation preference (ALP) increases typically the need for a MCOP also increases. A few key points to consider: 1.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

ithacaVC

JUNE 28, 2011

Pay to play provisions: simply stated, pay to play provisions provide that unless existing shareholders participate in the subsequent financing unfavorable things happen to their existing stock. 2. The impact of the warrant kicker is to dilute non-participants. There are many (many many) ways to slice pay to play provisions.

Warrant 53

Warrant Common Stock Liquidation Preference Institutional Investors 53

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

Gust

MAY 24, 2012

As a quick review, most startups begin life as corporations with a single class of equity securities, referred to as Common Stock , issued to founders, employees, and outside service providers. Options and warrants, when issued, are also typically exercisable for shares of Common Stock.

IPO 159

IPO Equity Common Stock Stock 159

Professor VC

JULY 25, 2013

In investment parlance, it strictly means that new classes of stock have equal rights with prior classes in terms of liquidation preference, voting rights, etc. It is a Latin phrase that means "on equal footing" and has been translated to mean "ranking equally", "hand in hand", and "fairly" according to Wikipedia.

Term Sheet 46

Term Sheet Silicon Valley Syndicate Syndication 46

thestartuplawyer.com

FEBRUARY 24, 2010

Contact The Startup Lawyer: Home Page About Contact FAQs Glossary Ryan Roberts Law: Home Page Social Networks: Facebook Twitter LinkedIn Flickr Delicious Digg Last.FM He obviously never launched a startup and got shafted by a co-founder.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

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

Scott Edward Walker

JUNE 9, 2011

As many of you know, VC investors are typically issued shares of preferred stock, not common stock. Indeed, preferred stock, as the name suggests, is preferable to (and more valuable than) common stock because it grants certain key rights to the holders, one of which is a conversion right.

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

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