Both Sides of the Table

FEBRUARY 15, 2016

Some companies may be able to become “cockroaches” or “ramen profitable” but cutting costs and staff substantially and getting to a burn rate that last 2 years. Even if you sold for $20 million they’d be thinking “I have senior liquidation preference so I get my money back.”).

Burn Rate 150

Burn Rate Cap Table Valuation Software Review 150

Feld Thoughts

FEBRUARY 9, 2016

One of my favorite lines in buried in the middle: “I’ve heard enough companies say “we simply can’t cut costs or it will hurt the long-term potential of the business” to get a wry smile. Pragmatic cost cuts are always possible and often productive.” Then use the down round to clean up your preference overhang.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

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. I see that all the time. My colleague: Whoa. And so forth.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Up and Running

AUGUST 17, 2015

C Corp versus LLC, non-competes, liquidation preferences, preferred versus common stock, and so on). By the time of their restaurant’s grand opening, they were able to build a brand around their restaurant, perfect their menu, and develop a clear understanding of their operating costs.

Entrepreneur 60

Entrepreneur Cofounder Angel Investor eCommerce 60

Both Sides of the Table

JANUARY 21, 2010

How to manage costs - One of the biggest frustrations that people have with lawyers are unexpected costs. You need to know how liquidations preferences work. In every firm there are A, B and C players. Good people and evil people. Focus on the partner you would be working with. You need to own your legal agreements.

Southern California 318

Southern California Silicon Valley IP Stock Options 318

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

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

David Teten

AUGUST 21, 2019

Lower processing cost. Much lower cost of capital, if company is highly successful. The cost of VC funding to a unicorn CEO can easily be the equivalent of paying well over 100% annual interest. Cost of capital is tax deductible, unlike traditional equity VC. For a VC round, this can be $25-50k+.

Revenue 60

Revenue Liquidation Preference Equity Cofounder 60

Early Growth Financial Services

DECEMBER 4, 2014

I discussed Change of Control, Reverse Vesting, and Liquidation Preferences in … Continue reading → Equity / Debt / Venture Funding' Most investors will expect this. That said, you should already have a sense of what to expect going into discussions. There’s less chance of you being blindsided.

Term Sheet 51

Term Sheet Liquidation Preference Vesting Option Pool 51

K9 Ventures

JUNE 5, 2015

In addition, the competition for and the cost of hiring people, especially in the San Francisco Bay Area, has gone up dramatically. So while the infrastructure cost and startup costs may have declined, the operating costs have increased. Increased competition for Series A means company needed more traction.

Seed Stage 48

Seed Stage Venture Capital Early Stage Valuation 48

VC Cafe

OCTOBER 31, 2022

Liquidation preferences – in addition to lower valuations, investors are looking for protective provisions. That means that in these down rounds, some investors are asking to 2-5x liquidation preferences. But in the third quarter, venture debt deal value fell by half to $4.7 CVCs have participated in 25.6%

Founder 173

Founder Technical Review Down Round Liquidation Preference 173

ithacaVC

SEPTEMBER 20, 2011

A whole cottage industry popped up, and the cost of a valuation is typically $4-8K. That means, assuming a 1X liquidation preference, that the common stock should be worth zero NOW simply based on the fact that the aggregate liquidation preference exceeds the M&A revenue multiples.

Liquidation Preference 49

Liquidation Preference Common Stock Stock Options Valuation 49

The Startup Lawyer

JULY 13, 2011

While using these document sets can help reduce transaction costs and the time to close, a startup can run into trouble by trusting deal documents without verification. For example, the well-known Series Seed has a 1x non-participating liquidation preference , while the version I reviewed had a 1x participating preference.

Preferred Stock 68

Preferred Stock Liquidation Preference Participating Preferred Stock 68

Scott Edward Walker

APRIL 9, 2012

Speed, simplicity and cost. Indeed, a startup could close a convertible note round in a day or two by merely issuing a 2-3 page promissory note, which could cost as little as $1,500-$2,000 in legal fees (or a little more if a note purchase agreement is also executed, which is customary).

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

ithacaVC

NOVEMBER 12, 2011

So, the debt holder ends up with Series A stock with a $1 value (and usually a 1X liquidation preference, in this hypo $1) for $.85. Such a structure shifts the cost of the convertible debt “reward” to the founders and away from the Series A investors, which, if you think about is, eminently fair.

Warrant 49

Warrant Liquidation Preference Equity Stock 49

Growthink Blog

MAY 23, 2011

Technical progress and market traction are much slower and cost a lot more than anticipated. A " black swan " investor appears out of the blue and backs the company - less impressed by the technology than by the talent, desire, and grit of the entrepreneur. There are a lot of dark, hard days.

Angel Investor 112

Angel Investor Venture Capital Sweat Equity Cram Down 112

Both Sides of the Table

JULY 19, 2011

When they rep you, the marginal cost of them trying to get you a slightly better deal is high for them relative to settling and moving on. On balance I usually prefer to recruit people from my network both in terms of saving costs as well as hiring people I know & trust. They hold out. They wait for a better offer.

Term Sheet 319

Term Sheet PR Liquidation Preference Stock Options 319

Both Sides of the Table

SEPTEMBER 2, 2009

I took money with a 3x participating preferred liquidation preference with 8% compounded interest annually. Coupled with my participating preferred from 1999 and 2000 I had more than $55 million of liquidation preferences. In my first company I had to raise money in April 2001 or die.

Founder 329

Founder Liquidation Preference Term Sheet Participating Preferred 329

K9 Ventures

MARCH 23, 2011

It is in essence equivalent to being a Liquidation Preference that is typically seen in a preferred equity financing. I’ve done priced equity rounds for companies at pre-negotiated amount with law firms on the basis of using standard docs at prices which are marginally more than it would have cost to do a note.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

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." As a result I believe some of the perceived difference in time and cost are disappearing and less relevant to the debt vs. equity debate.

Angel Investor 103

Angel Investor Early Stage Equity Valuation 103

SoCal CTO

JULY 13, 2010

The sunk costs trap. liquidation preference. Pivoting - Chris Dixon , June 14, 2010 My Hunch cofounders and I frequently ask ourselves: “If we were to start over today, would we build our product the same way we had so far?&# &# This exercise is meant to counter a number of common cognitive biases, such as: 1.

Cofounder 175

Cofounder Technical Cofounder Term Sheet Startup 175

www.founderinstitute.com

MARCH 2, 2010

Participation" means that investors "double dip" by getting both their liquidation preference and their equity allocation. - A 1x liquidation preference , versus a 1x to 3x range in recent deals reported on TheFunded.com. Legal costs are rising while venture returns are shrinking.

Term Sheet 40

Term Sheet Liquidation Preference Vesting San Diego 40

crowdSPRING Blog

MARCH 21, 2014

Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. The Surprisingly Large Cost of Telling Small Lies | NYT – crowdspring.co/PNlPT7. Online commenter critical of business can be sued for defamation, Oregon court says – crowdspring.co/1d6RpW8. 1mgb88L.

Social Media 93

Social Media Small Business Design Media 93

abovethecrowd.com

FEBRUARY 24, 2015

Many companies embed costs that are truly variable (for instance customer support, marketing, credit card processing) below the gross margin line. Most private company financings involve the use of preferred stock with liquidation preferences. This was the recent case with the Box.com IPO.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

Both Sides of the Table

MARCH 3, 2013

Obviously that barrier has been brought down with low-cost ability to capture, stream and distribute content over the Internet. We talked about Liquidation Preference, Voting Rights, and all of the other valuable terms crowd-funding investors don’t understand. Neither does Clayton.

Bankruptcy 403

Bankruptcy Offshore Liquidation Preference Balance Sheet 403

abovethecrowd.com

APRIL 20, 2016

In Silicon Valley boardrooms, where “growth at all costs” had been the mantra for many years, people began to imagine a world where the cost of capital could rise dramatically, and profits could come back in vogue. Moreover, once high-flying startups began to struggle on the fundraising trail.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Both Sides of the Table

FEBRUARY 14, 2016

And imagine this … if you’re doing triage on your own portfolio and spending hours negotiating with other VCs and with entrepreneurs who don’t want to cut costs … then how likely are you to want to look at other people’s deals? Plus, down rounds trigger anti-dilution provisions.

Valuation 150

Valuation Down Round Startup Later Stage 150

Life Beyond Code

SEPTEMBER 27, 2011

When we were looking to talk to investors, Sramana introduced us to multiple investors and acted as an advisor helping us to navigate complex term sheet clauses like tranche financing and liquidation preferences. At 1/12th the cost, 1M/1M provides far more value. Of 1M/1M he says, “The value of your program is amazing.

Programming 116

Programming Silicon Valley Bootstrapping Technical Review 116

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. And, broadly speaking, that is correct. But the devil is in the details, and too many teams overlook extremely important details.

Term Sheet 48

Term Sheet Institutional Investors Technical Review Lead Investor 48