6 Reasons Smart Entrepreneurs Think Twice Before IPO

Startup Professionals Musings

In reality, this option is a nightmare that can bump you out of the driver seat, dilute your equity and create a business entity you can’t control. For financial reasons alone, an IPO is a statistically rare phenomenon, happening just 275 times in 2014 , out of almost 500,000 startups. As an advisor and mentor to startups, I try to make sure entrepreneurs understand both the pros and cons of an IPO as an exit strategy. entrepreneur IPO liability startup

IPO 213

When A Startup Chooses IPO Most Founders Are Out

Startup Professionals Musings

They don’t realize that this option would likely be their worst nightmare, since it costs millions for the road show, usually dilutes your equity to a tiny fraction, and takes away all your entrepreneurial control. Even though the Initial Public Offering (IPO) alternative for a successful startup seems to be coming back, it is relatively rare. IPOs in 2008, the market was up to a still trivial 128 in 2012 (compared to 675 in 1996).

IPO 168
Insiders

Sign Up for our Newsletter

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

An IPO Exit Strategy Puts the Entrepreneur at Risk

Startup Professionals Musings

They don’t realize that this option would likely be their worst nightmare, since it costs millions for the road show, usually dilutes your equity to a tiny fraction, and takes away all your entrepreneurial control. Even though the Initial Public Offering (IPO) alternative for a successful startup seems to be coming back into vogue, it is relatively rare. IPOs in 2008, the market was up to a still trivial 159 in 2011. entrepreneur startup liability risk IPO business

Mathematical vs. Economic Dilution of Startup Equity: Thinner Slices of an Extra-Large Pizza

Gust

Let’s get right down to business: Dilution of founders’ and other early shareholders’ equity in startups is frequently a subject of intense interest and debate. Rose have written plenty on the subject; in fact, while I was editing this piece, David published a new post here at Gust: How does equity dilution work for startups? That’s the concept of what some call mathematical dilution.

Second-Class Investor Citizens: Facebook’s IPO and Dual-Class Equity Structures

Gust

Dual-class voting structures are receiving a lot of attention these days along with intense publicity related to the Facebook IPO , following in the wake of other recent tech IPOs with a similar structure such as Zynga and LinkedIn. To the extent meaningful control survives an IPO, it’s in the form of large blocks of shares held by founders, early investors or others who control enough votes to elect directors at the annual meeting of stockholders.

IPO 111

Real Entrepreneurs Exit If Their Startup Goes Public

Startup Professionals Musings

They don’t realize that this option would likely be their worst nightmare, since it costs millions for the road show, usually dilutes your equity to a tiny fraction, and takes away all your entrepreneurial control. Even though the Initial Public Offering (IPO) alternative for a successful startup seems to be coming back into vogue, it is still extremely rare. companies made the IPO transition in 2009, out of thousands of startups.

On the Road to Recap:

abovethecrowd.com

The pressures of lofty paper valuations, massive burn rates (and the subsequent need for more cash), and unprecedented low levels of IPOs and M&A, have created a complex and unique circumstance which many Unicorn CEOs and investors are ill-prepared to navigate. In 1999, record valuations coexisted with record IPOs and shareholder liquidity. Record private Unicorn valuations were offset by increasingly fewer and fewer IPOs. It will also minimize future dilution.

6 Insights To Current Funding Trends For Your Startup

Startup Professionals Musings

VCs tend to carry their partners much longer, in hopes of a big public offering (IPO) that could produce a windfall. This can cause early investor dilution, lower ultimate returns or leave the startup stranded.

Sorry Startup Employee #100, Your Equity Probably Won’t Make You Rich

Hunter Walker

Bloomberg’s article about lower-than-expected financial gains from startup IPOs for midlevel employees stuck in craw this week because there’s a handful of complex issues at play here. You join at an executive level pre-IPO for a company that already has huge potential. Rising in an organization and getting more grants pre-IPO helps but generally, it’s just math. Assume you get.25% of a company and you’re diluted 50-75% before IPO.

Equity 102

7 Advantages That Local Small Business Owners Enjoy

Startup Professionals Musings

It seems that most of you entrepreneurs I meet in my role as business advisor are convinced that starting a new business requires equity investors, exponential growth, and a plan to go public via IPO. With major investors, your equity and return is diluted and delayed. I often recommend a less painful alternative, called the lifestyle entrepreneur approach, where your focus is on making a living and a work-life balance , rather than changing the world.

10 Startup Quandaries That May Redefine Your Business

Startup Professionals Musings

The downside is loss of control and financial dilution. If you take investor money, expect a push for hockey-stick growth and a liquidity event, like going public (IPO) or sale (M&A), to get the payback. Most entrepreneurs struggle with many startup founders quandaries in building their business, and these key dilemmas are probably the biggest source of pain and failure for the entrepreneur lifestyle.

Investing in biotech and therapeutics

Version One Ventures

To make investments attractive, biotech founders also sell that the time to exit might be faster than in IT (it is true that successful therapeutics companies IPO or are acquired before launch) and that now, they can accelerate drug discovery with AI/machine learning (meaning, less time and thereby less capital is required).

Why the Blockchain is so disruptive for venture capital

Version One Ventures

It has 10 times the market cap of SNAP, the most prominent IPO of 2017. Then, if you win the deal, you have major influence on the development of the start-up through negotiated governance mechanisms like board seats, information rights, anti-dilution rights, etc. These days not a single meeting with a fellow VC goes by without talking about Blockchain and how to invest in this space. We are all a bit puzzled by how quickly this market has evolved.

The Harsh Reality Of The Preference Stack

Haystack

For early investors in companies… the notes you’ve converted into shares and the equity you own in startups that breakout and raise lots of money will not only likely get diluted (very few early-stage funds can defend their positions over time or grab enough ownership upfront to withstand the dilution) but also will likely get demoted on the preference stack. valuation, that’s sort of like a new IPO, but without the lockup period.

Should Startups Care About Profitability?

Both Sides of the Table

That management team might have decided that they wanted to maintain more control of their company, didn’t want new board members and didn’t want to take dilution. Most likely after year 4 they began filing for their IPO to go public and journalists would be lining up to write stories in year 5 about how “they had never turned a profit in their 5 years of operations” and how “they were going public but still losing money.” Stock option grants dilute your ownership in the company.

How to Raise Investor Funding for Your Startup

Early Growth Financial Services

Valuation — Know what these terms mean: Fully-diluted — This includes all issued stock and anything that could be converted into common stock (typically after an acquisition or IPO), such as your stock option pool. Pre-money valuation — The value of the company prior to investment, calculated on a fully-diluted basis. We recently participated in a panel discussion and workshop at Ubifrance. Nicolas L.

10 Tough Quandaries That Lead Entrepreneurs Astray

Startup Professionals Musings

The downside is loss of control and financial dilution. If you take investor money, expect a push for hockey-stick growth and a liquidity event, like going public (IPO) or sale (M&A), to get the payback. Most entrepreneurs struggle with many startup Founders dilemmas in building their business, and these key dilemmas are probably the biggest source of pain and failure for the entrepreneur lifestyle.

What to expect before accepting the offer to become Engineer #1 at a startup

The Next Web

Every time a startup raises capital, all common shareholders are diluted. All of the estimates displayed above are figures prior to any dilution. As stated earlier, investors will dilute ownership upon nearly every round of financing. As a startup becomes more mature, the impact from dilution will improve (unless it gets in a recap situation, which we will avoid discussing). So, if o = initial ownership and y = total dilution, x = o * (1 – y).

Bad Notes on Venture Capital

Both Sides of the Table

And now I have to explain to team that they’re taking more dilution than they expected if we do a down round. Me: More dilution? Maybe an IPO – who knows? This week. On the phone … Me: So, you raised venture capital? Him: Yeah. We raised a seed round. About $1 million. Me: At what price? Him: It wasn’t priced. We raised a convertible note. Me: With a cap? Him: Yes, $8 million. Me: Ah. I see. So you did raise with a price.

Super Angels Are A Boon To Startups Needing Funding

Startup Professionals Musings

VCs tend to carry their partners much longer, in hopes of a big public offering (IPO) that could produce a windfall. This can cause early investor dilution, lower ultimate returns or leave the startup stranded. Venture capitalists (VCs) have long been seen as the top of the pyramid for startup funding sources, but in fact angel investors now fund over 60 times as many companies, according the Center for Venture Research.

Small Investors

ithacaVC

If FFAs only invest at the beginning and do not make any follow on investments as the company raises more $$ then the only real way FFAs make money when the company is ultimately sold is if the company keeps raising future rounds at higher and higher valuations (and IPO exit may provide upside if the stock price increases over time after the IPO). In this situation, the FFAs are diluted from an ownership percentage, but enhanced economically.

10 Common Dilemmas That Derail Many Entrepreneurs

Startup Professionals Musings

The downside is loss of control and financial dilution. If you take investor money, expect a push for hockey-stick growth and a liquidity event, like going public (IPO) or sale (M&A), to get the payback. Most entrepreneurs struggle with many startup founders dilemmas in building their business, and these key dilemmas are probably the biggest source of pain and failure for the entrepreneur lifestyle.

How Open Should a Startup CEO be with Staff?

Both Sides of the Table

A cautious person wouldn’t try to pry people out of Twitter right before their IPO to” join my cause!!” Dilution / valuation. I hate when companies publish too much information about the total stock option allocations, the company valuations, the dilution faced in every round, etc. I wasn’t expecting this much dilution this quickly.” CEO transparency. It almost sounds uncontroversial. A CEO should tell her staff everything! Right? Right?!?

How is the VC Asset Class Doing?

View from Seed

At the same time, despite some realizations in recent years through M&A, PE acquisitions, and IPOs, the general sense I get from LPs is that the level of distributions don’t quite line up with the unrealized performance.

LP 213

Unicorn deals – not that heavily structured

The Equity Kicker

I think a bigger part of the explanation lies in deal dynamics – it’s easier for companies maximise valuation in private financing auctions than it is in IPOs. Only 30% of the deals had protection against a downround IPO, and protection against private downrounds was inline with venture industry standards (weighted average anti-dilution protection).

Angel Investing 4 – Why You Need Deep Pockets to Win Big

Both Sides of the Table

But consider periods of time where the average time a company exists before acquisition or IPO is 7-10 years. avoid being diluted). And if you’re not busy being crushed (diluted) you might not notice that the people above you in the cap table (e.g. This is the fourth article in a series on what it takes to be a great angel investor (and why this should matter to entrepreneurs). Part 1 – Access to Great Deal Flow – is here.

Your Product Needs to be 10x Better than the Competition to Win. Here’s Why:

Both Sides of the Table

In 1995 Netscape IPO’d and browsers started to become more prevalent. IdeaLab has created 75 companies, leading to 8 IPOs, 35 or so acquisitions and more than 5 companies worth in excess of $1 billion. Too many entrepreneurs focus on dilution. But over-optimizing for dilution is a bad attribute relative to focusing on creating a big & winning company. Last night I had the great privilege to interview Bill Gross , one of the Internet’s true pioneers.

10 Dilemmas Every Startup Founder Must Deal With

Startup Professionals Musings

The downside is loss of control and financial dilution. If you take investor money, expect a push for hockey-stick growth and a liquidity event, like going public (IPO) or sale (M&A), to get the payback. Most entrepreneurs struggle with many startup Founders dilemmas in building their business, and these key dilemmas are probably the biggest source of pain and failure for the entrepreneur lifestyle.

Why Startups Should Raise Money at the Top End of Normal

Both Sides of the Table

Early-stage investors in technology startups are only looking for growth-oriented companies that can achieve an “exit&# someday – either via selling your company to a larger company or via an IPO. Then you can do a little bit of research and find out that very few companies ever achieve this valuation in a trade sale so you’re clearly gunning for an IPO. This article originally appeared on TechCrunch.

The Authoritative Guide to Prorata Rights

Both Sides of the Table

And because they are so much larger by the time they go public (think: Facebook $104 billion, Twitter $18 billion, Alibaba > $200 billion) the private value of the most successful companies pre-IPO is more more valuable than it ever was. This might happen because to meet all investors needs they end up selling too much of the company, taking too much dilution and feeling beat up.

LP 283

An Inside Scoop on the Funding Environment and What it Might Mean for You

Both Sides of the Table

Many had started IPO’ing and we started to think about our future. They had to focus on getting a “W” one day over the short-term dilution impact of raising at a price lower than they had set out to achieve. $30 million. That’s how much Invoca raised and we’re announcing it today. It is an heroic accomplishment in a brutal fund-raising market in which only market leaders can bring in that sort of money. But the story started more than 6 months ago.

Alibaba S-1: How Alibaba Is Governed Like China’s Politburo

Agile VC

Such an approach is common in Silicon Valley… Google, Facebook, LinkedIn, and others have dual-class equity structures which give the holders of one class of shares (typically founders) disproportionate voting rights relative to their fully-diluted ownership stake in the company. FWIW, the members of the Alibaba Partnership currently own about 14% of the total shares of the Alibaba Group prior to the IPO.

China 135

Four Major Startup Stages That You Should Know About

YoungUpstarts

If you are getting funded for the first time, which means that you have not diluted the shares of your company, you will be receiving Series A funding. It will be in millions and you will have to dilute your shares even further if you are aiming for another funding round. There is a complete process to go for an IPO. After an IPO, you can retire and get a new management to work for the company. by Arsalan Sajid, startup community manager at Cloudways.

Merger 106

2010 VC Funding Outlook for Startups – Prepare for Winter (Part 3/3)

Both Sides of the Table

Bad stock markets mean less IPO’s and lower prices for M&A. If you’re raising $2 million and can close on $3 million – don’t optimize to minimize short-term dilution, optimize for contingencies in case the market gets worse. In the first post in this three part series I described why I believe the VC market froze between September 2008 – April 2009.

Hawaii 240

Does Elon Musk + Peter Thiel = 3 or 1.5

Professor VC

I think we will see more of these in 2016 and beyond as IPOs are still far and few between and unicorns struggle to justify their stratospheric valuations. Obviously, Musk and Thiel both did fine off the eventual Paypal IPO (and even better subsequently with Facebook and Tesla). Not surprisingly, the merger was highly dilutive, particularly to Confinity/PayPal shareholders. At the IPO, Musk held a 14.2%

The Rise & Fall of Great Venture Firms [Part 1] ? AGILEVC

Agile VC

Burr, Egan, Deleage [Boston] –> Huge wins in the 1980s and early 90s included Continental Cablevision (sold for $5.3B – now a big chunk of what is Comcast), Qwest Communications, Cephalon (biotech IPO, acq by Teva), and Powersoft (Burr, Egan made 35x when it went public and then was acquired by Sybase). Like any other form of diluting your focus… it occasionally works, but usually doesn’t. How to Evaluate Firms for a Seed VC.

What are the terms of Yuri Milner/SV Angel’s Start Fund $150K investment into Y Combinator companies?

Startup Company Lawyer

The Series AA has a 1x non-participating liquidation preference, weighted-average anti-dilution, basic protective provisions (adverse changes to the Series AA, number of shares of Series AA, or merger/asset sale), right to maintain proportionate ownership, ROFR/Co-Sale rights and basic information rights. 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.

The Great VC Ice Age is Thawing (for now) – Part 1 of 3

Both Sides of the Table

Three reasons: There is a relative valuation between the price a VC pays and their expectations of what it will exit for in an IPO or trade sale. The other investors around the table didn’t agree nor did the “independent” board members who were willing to turn a blind eye to capital inefficiency since they didn’t have any economic interests that would be diluted by continued fund raising to support a capitally inefficient management team.

Flexible VC, a New Model for Companies Targeting Profitability

David Teten

The value ascribed by subsequent investors (in a secondary); buyers (acquisition); or the public markets (IPO). (co-written with Jamie Finney, Founding Partner at Greater Colorado Venture Fund. His work on VC and small communities can be found at greatercolorado.vc/blog. blog. ). Of the Inc.

Think Long To Succeed In The Immediate

YoungUpstarts

The single biggest reason that the average company struggles or even fails is due to their lack of focus and dilution of their greatest resource, which are people. Yes, cash flow is king and every start-up wants to achieve greatness or hit a sizable IPO, initial public offering sooner than later. By Dana A.

The Pre-Seed FAQ

K9 Ventures

This is another common question, especially from founders who are worried about how they now have one more round of dilution to take before they get to their Series A. So the amount of dilution a company will take on still remains the same over the life of the company. One of the people I respect the most in the VC/PE media ecosystem is Dan Primack. I’ve been an avid reader of Dan’s Term Sheet while he was at Fortune , and now Pro Rata at Axios.

Seven Power Questions to Help You Become a Bankable Star

YoungUpstarts

Goldman Sachs and Morgan Stanley lead the IPO market because they are perceived to have reliably procured capital, at the right price, to hundreds of newly listed companies. When you work for everyone, it dilutes your brand. Not just any small company can hire Morgan Stanley to do their IPO. by Andrew Sobel, author of “ Power Questions: Build Relationships, Win New Business, and Influence Others ”. Get me Will Smith!” “We We need Sandra Bullock!” Call George Clooney!”.

IPO 136

Texas Startup Manifesto 2.0

Austin Startup

In 2019 and 2020, we saw hundreds of millions of dollars in non-dilutive funding go to Texas startups, most of which had never worked with the government before. Texas is the most promising technology market in the United States.

Texas 90