Up and Running

MAY 21, 2015

They generally also get additional rights that common shareholders don’t get, such as anti-dilution protection, and liquidation preference (discussed further below). Anti-dilution protection. That risk of a decrease in the overall ownership percentage triggers an important term called an anti-dilution protection clause.

Covenant 60

Covenant Liquidation Preference Ratchet Dilution 60

ithacaVC

JUNE 29, 2018

Our portfolio companies routinely adopt carve out plans when the founders/employees equity values are not likely to provide enough incentive to get a company to an exit. This typically results when the company has raised a lot of money and the preferred stock liquidation preference would absorb an out sized portion of the exit proceeds.

Management 40

Management Liquidation Preference Preferred Stock Dilution 40

Austin Startup

AUGUST 1, 2017

First, investors will sometimes be willing to take a higher valuation if it means getting a heavier liquidation preference. Should you accept a 3x liquidation preference with a $15MM valuation instead of a 1x preference at a $8MM valuation? If you’re confident you’ll get a huge exit, maybe.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

ithacaVC

DECEMBER 13, 2013

They are typically pretty simple: (i) shares owned by founders and (ii) shares authorized for issuance in a stock option pool, some of which may be issued to employees already and some of which will be available for future issuance. Again, that number is typically around 10%, as in 10% available on a fully diluted basis post-money.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

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

MAY 1, 2013

It must be paid out before the common shares, which are typically held by the founders and other employees.” The article also states that “But venture capital investments are structured to ensure that the venture capitalists are paid before founders and employees.” The dividend goes unpaid until the company is sold.

Dividend 45

Dividend Liquidation Preference Common Stock Venture Capital 45

dondodge.typepad.com

JANUARY 15, 2011

Community is more powerful than money or technology » August 11, 2007 How much equity for investors and employees? How much equity should I grant to early employees? The second and third rounds of funding take additional shares of equity and dilute existing investors and founders. Should I take Angel or VC money?

Equity 40

Equity Employee Dilution Valuation 40

Venture Chronicles

AUGUST 23, 2013

What is really lacking in tech startups today is a strong voice for common shareholders, the employees, in private companies. The executive members of the board are supposed to fulfill this but all too often their voice is not equal to that of the other board members when it comes to shareholder classes.

Management 66

Management Startup Liquidation Preference Dilution 66

K9 Ventures

NOVEMBER 21, 2011

If they have, then there is no reason the founders shouldn’t get some liquidity of their own. 2) Fairness to other early employees in the company : This is a very critical and important point, that is often overlooked by founders. I believe this is something that needs to be determined on a company-by-company basis.

Founder 87

Founder Common Stock Preferred Stock Stock 87

www.mattbartus.com

DECEMBER 9, 2012

If you are a company that is fundraising, keep in mind that there are a few different levers you can pull to change the amount of dilution that the founders will experience. 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.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

K9 Ventures

NOVEMBER 21, 2011

If they have, then there is no reason the founders shouldn’t get some liquidity of their own. 2) Fairness to other early employees in the company : This is a very critical and important point, that is often overlooked by founders. I believe this is something that needs to be determined on a company-by-company basis.

Founder 84

Founder Common Stock Preferred Stock Stock 84

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

www.paulgraham.com

APRIL 28, 2010

When youhear people talking about a successful angel investor, theyre notsaying "He got a 4x liquidation preference." Dilution is normal. They cant dilute you without diluting themselves justas much. And they wont dilute themselves unless they end up net ahead. So its your choicewhether you get diluted. [

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63

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

abovethecrowd.com

APRIL 20, 2016

All Unicorn participants — founders, company employees, venture investors and their limited partners (LPs) — are seeing their fortunes put at risk from the very nature of the Unicorn phenomenon itself. We have already seen examples of founders and management obtaining liquidity in front of investors. Now you make your own decisions.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Both Sides of the Table

FEBRUARY 14, 2016

Social networking finally came of age connected the planet and leading to enormous wealth creation for Facebook employees and investors. Smart phones finally took off leading to enormous wealth creation for Apple employees and investors but also helped propel Google, Facebook, Twitter, Instagram, Snapchat, WhatsApp and others.

Valuation 150

Valuation Down Round Startup Later Stage 150