Gust

APRIL 11, 2014

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. That’s the concept of what some call mathematical dilution. Suppose it raises $2 million at a $6 million pre-money valuation.

Dilution 162

Dilution Equity Pre-Money Valuation Prospectus 162

Startup Professionals Musings

JANUARY 19, 2020

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

Angel Investor 314

Angel Investor Venture Capital Silicon Valley Startup 314

Startup Professionals Musings

JULY 3, 2015

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.

IPO 120

IPO Initial Public Offering Entrepreneur Private Equity 120

Both Sides of the Table

OCTOBER 12, 2014

” If you invested at $8m pre-money and put $2m in (thus you own 20% of a company at a $10m post-money valuation) and if you put another $2m into a round at a $40m valuation raising $10m ($50m post) you end up with half your money at $8m pre and half at $40m pre thus your average price goes up dramatically. That seems fair.

Technical Review 336

Technical Review Later Stage Early Stage LP 336

Both Sides of the Table

SEPTEMBER 29, 2009

They should heed the age old advice that raising slightly more money while you can is always better than trying to optimize future valuations. Should VC’s really be impacted by public market valuations when the money that they’re investing today should be for returns in 7-10 years? Short answer – yes.

Burn Rate 263

Burn Rate Valuation Pre-Money Valuation Private Equity 263

Feld Thoughts

MARCH 24, 2017

They’re a rare venture fund that doesn’t exercise pro-rata rights over the lifetime of an investment, meaning they dilute alongside company founders, which they believe better aligns their interests as seed investors with the entrepreneurs. FC’s portfolio is made up exclusively of seed stage investments at seed valuations.

Founder 75

Founder LP Technical Review Seed Stage 75

Both Sides of the Table

OCTOBER 1, 2009

Bad stock markets mean less IPO’s and lower prices for M&A. This has a tangible impact on the valuation of start-ups and the pace of investment. 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.

Technical Review 269

Technical Review Stock Hawaii Early Stage 269

Both Sides of the Table

SEPTEMBER 18, 2014

Me: There is no rational explanation for valuations of A round companies by ANY objective financial measure. If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Startup Professionals Musings

DECEMBER 27, 2014

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

Angel Investor 260

Angel Investor Silicon Valley Startup Portfolio 260

Version One Ventures

FEBRUARY 6, 2019

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).

Dilution 132

Dilution Artificial Inteligence IPO Valuation 132

David Teten

JANUARY 19, 2021

The value ascribed by subsequent investors (in a secondary); buyers (acquisition); or the public markets (IPO). Yes, via conversion rights at a valuation cap. Yes, via conversion rights at a valuation cap. On average, founders own just 43% of equity by Series B , declining thereafter. Volatile, uncapped.

Cofounder 78

Cofounder Technical Review Equity Dividend 78

Both Sides of the Table

SEPTEMBER 28, 2013

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. ” Yes.

Startup 417

Startup Dilution San Diego Stock Options 417

Haystack

JULY 8, 2018

valuation, that’s sort of like a new IPO, but without the lockup period. While folks will feel sympathy for line employees at startups who don’t make any gains in a sale, no one will feel sorry for early-stage investors who get washed out.

Early Stage 95

Early Stage Dilution Private Equity Common Stock 95

The Equity Kicker

MARCH 3, 2016

Here’s the headline data on the deals: Mean valuation: $4.4bn. Median valuation: $1.6bn. 35% of companies had valuations in the $1.0-1.1bn However, whilst I haven’t seen a full analysis, I doubt this additional downside protection would be enough to explain all the difference in valuation.

Liquidation Preference 60

Liquidation Preference Participating Preferred Valuation IPO 60

ithacaVC

FEBRUARY 1, 2018

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).

Preemptive Right 45

Preemptive Right Cap Table Valuation Dilution 45

www.mattbartus.com

DECEMBER 9, 2012

How to pump up your VC valuation. 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. One possibility is to negotiate a higher valuation and offer warrants (i.e., Matt Bartus — February 9, 2010.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Gust

SEPTEMBER 17, 2014

Me: There is no rational explanation for valuations of A round companies by ANY objective financial measure. If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Early Growth Financial Services

JUNE 26, 2014

Baze, Partner at Partech Ventures, Carlos Diaz, CEO at Kwarter, and EGFS’ Chief Strategy Officer Glenn McCrae covered raising funds, how-to pitch VCs, and potential sticking points around valuation. Pre-money valuation — The value of the company prior to investment, calculated on a fully-diluted basis.

Pre-Money Valuation 51

Pre-Money Valuation Option Pool Dilution Common Stock 51

Hunter Walker

DECEMBER 18, 2015

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. Post IPO, You Have Choices: Hold or Sell.

Equity 48

Equity Employee IPO Vesting 48

Ben's Blog

AUGUST 17, 2020

When speaking with founders and private growth investors, we hear countless references to “multiples paid” on current or near-term revenue; both obsess over this because a higher multiple translates to a higher valuation. How valuation multiples work Why did multiples become a shortcut-heuristic for estimating valuations in the first place?

Valuation 36

Valuation Balance Sheet Cofounder Forecast 36

The Next Web

OCTOBER 7, 2013

Every time a startup raises capital, all common shareholders are diluted. As an aside for founders, there is an interesting approach on how to arrive at equity offers outlined by Fred Wilson that may be worth checking out once there is a sense of valuation. All of the estimates displayed above are figures prior to any dilution.

Engineer 129

Engineer Dilution Option Pool Vesting 129

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

Feld Thoughts

FEBRUARY 28, 2023

However, the lack of a conversion right also has implications for anti-dilution protection: in the U.S., In Germany, anti-dilution protection is achieved by issuing additional preferred shares. IPO issues: Possibly the biggest problem for German venture-backed companies is the very low number of IPOs in Germany.

Germany 165

Germany Liquidation Preference Option Pool Advisory Board 165

K9 Ventures

OCTOBER 10, 2017

The amount of capital (and therefore the resulting valuation) also sets the stage for the next round of financing for a company. 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.

Seed Stage 82

Seed Stage Finance Later Stage Equity 82

abovethecrowd.com

APRIL 20, 2016

One key to this population growth has been the remarkable ease of the Unicorn fundraising process: Pick a new valuation well above your last one, put together a presentation deck, solicit offers, and watch the hundreds of million of dollars flow into your bank account. By January of 2016, that number had ballooned to 229.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Scott Edward Walker

JULY 7, 2011

Redemption rights are principally designed to protect investors from a situation where, after a period of time, their portfolio company is just moving “sideways” and, accordingly, is not an attractive acquisition target or IPO candidate.

Term Sheet 49

Term Sheet Redemption Venture Capital Preferred Stock 49

www.paulgraham.com

APRIL 28, 2010

In an IPO, it might not merely addexpense, but change the outcome. Those remedial actions can delay, stall or even kill the IPO. Of course the odds of any given startup doing an IPO are small.But not as small as they might seem. Another concept we need to introduce now is valuation. Hell if they know.In

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

www.payne.org

SEPTEMBER 22, 2011

3 Dilution. In addition, IPOs are a special scenario, where the preference usually goes away and all stock classes are in equal footing). Those new shares are created out of thin air by the company, and will dilute all of the current stockholders. In a startup, dilution happens, and you just need to factor it in.

Equity 56

Equity Employee Vesting Preferred Stock 56

Professor VC

JUNE 20, 2011

While my ownership stake in the company has been diluted through these financings (and the merger with uControl), my carried interest (paper value of my equity) has been going up with each increase in valuation. As I said up front, I have mixed emotions about the financing. Is $120M enough capital to reach these exit goals?

San Jose 28

San Jose Angel Investor Term Sheet Venture Capital 28

Both Sides of the Table

MARCH 30, 2016

Many had started IPO’ing and we started to think about our future. Investors had grown too used to the idea that any deal you funded would get marked up to a higher valuation in the next round and that’s clearly not always true. Mutual funds had begun marking down the valuations of their private investments in high-profile deals.

Balance Sheet 150

Balance Sheet Burn Rate Valuation Forecast 150

www.paulgraham.com

OCTOBER 23, 2010

The investors backed down; wedid another round of funding at a reasonable valuation; the giantcompany finally gave us a piece of paper saying they didnt own oursoftware; and six months later we were bought by Yahoo for muchmore than the earlier acquirer had agreed to pay. Miraculously it all turned out ok. How much stock should they get?

Startup 105

Startup Cofounder Software Stock 105

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. Angels/Seed Funds v.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

discuss.joelonsoftware.com

NOVEMBER 1, 2010

I dont control the companys valuation: if for example the company is privately-held, then the value of equity might be complicated and outside my control (you can dilute equity, reinvest any revenue instead of paying it in dividends, etc., Unethical IMO but some people make money that way.

Sweat Equity 40

Sweat Equity Equity Angel Investor Affiliate 40

Professor VC

DECEMBER 8, 2015

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). At the IPO, Musk held a 14.2%

Merger 28

Merger LP IPO Redemption 28

www.paulgraham.com

APRIL 28, 2010

2 ] When you negotiate terms with a startup, there are two numbers youcare about: how much money youre putting in, and the valuation ofthe company. The valuation determines how much stock you get. Ifyou put $50,000 into a company at a pre-money valuation of $1million, then the post-money valuation is $1.05

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63

Scott Edward Walker

JUNE 9, 2011

two or three times the Original Purchase Price) to create more flexibility with regard to an IPO. Introduction This post originally appeared as part of the “ Ask the Attorney ” column I am writing for VentureBeat ; it is another installment of my ongoing series regarding venture capital term sheets.

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

Ben's Blog

MAY 24, 2021

IPO market. There are a number of trends concerning IPOs and capital formation to note: First, the raw number of IPOs has declined significantly: From 1980-2000, the US averaged roughly 300 IPOs per year; from 2001-2016, the average fell to 108 per year. In the first quarter of 2021 alone, SPACs raised $87.9

SEC 36

SEC Accredited Investor IPO Technical Review 36