Both Sides of the Table

SEPTEMBER 18, 2014

At an accelerator … 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.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Startup Company Lawyer

MARCH 14, 2010

After the recent announcement of the Series Seed Financing documents by Marc Andreesen, Brad Feld points out that there are now four sets of “open source&# equity seed financing documents: TechStars Model Seed Funding Documents (by Cooley). Y Combinator Series AA Equity Financing Documents (by WSGR). under $500K).

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

The Startup Lawyer

JANUARY 22, 2013

Depending on the delta between the price cap and the pre-money valuation of the qualified equity financing, the convertible note investors could receive a windfall in terms of liquidation preference. The Potential Problem Let’s say Series A investors invest at a pre-money valuation that [.].

Liquidation Preference 54

Liquidation Preference Pre-Money Valuation Valuation Equity 54

ithacaVC

DECEMBER 14, 2011

Continuing with the “No Mess” theme of commenting on things that give VCs pause, I thought it would be good to touch on liquidation preference. Specifically, “too much” liquidation preference (I will use “LP” for liquidation preference). Ok, enough of the background.

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

Both Sides of the Table

MAY 30, 2015

When you do a convertible note with a cap that converts into the next round of funding one of the unintended consequences is that if you’re successful and raise at a larger price than your cap the early angels often get “multiple liquidation preferences” on their dollars in. It’s the silent screwing that stings.

Liquidation Preference 150

Liquidation Preference Ratchet Angel Investor Entrepreneur 150

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. It’s like we need a finance 101 course for entrepreneurs.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Scott Edward Walker

APRIL 22, 2012

This post is the second part of a three-part primer on convertible note seed financings. Part 1, entitled “ Everything You Ever Wanted To Know About Convertible Note Seed Financings (But Were Afraid To Ask) ,” addressed certain basic questions, such as (i) what is a convertible note? (ii) What Is a Conversion Discount?

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

ReadWriteStart

SEPTEMBER 2, 2011

While certainly not every business needs to raise venture financing, it is the path for many high-growth technology startups. Including things like liquidation preferences impact both future rounds and ultimate liquidity to why VCs ask to expand an option pool before investing as part of their term sheet.

Cap Table 125

Cap Table Term Sheet Liquidation Preference Technical Review 125

Feld Thoughts

FEBRUARY 9, 2016

I watched, participated, and suffered through every type of creative financing as companies were struggling to raise capital in this time frame. I’ve seen every imaginable type of liquidation preference structure, pay-to-play dynamic, preferred return, ratchet, share/option bonus, option repricing, and carveout.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Both Sides of the Table

SEPTEMBER 5, 2012

To better understand the arguments for / against convertible equity I suggest you read my posts on those topics: Is convertible debt preferable to equity? Was Paul Graham right in his “high resolution” financing post? Convertible Notes Also Can Have Multiple Liquidation Preferences. That’s right.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Startup Professionals Musings

JANUARY 27, 2012

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” Liquidation preference.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 223

Both Sides of the Table

APRIL 14, 2010

That means that the likely have a minimum of $15 million in liquidation preferences. It will usually be higher because the liquidation preference has a dividend so if the deal is long in the tooth assume that the liquidation preference might be $20-22 million. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Scott Edward Walker

APRIL 9, 2012

Introduction We are in the golden age of seed financing. Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook. and (iii) what are the advantages of issuing convertible notes?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Startup Professionals Musings

SEPTEMBER 14, 2010

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” Liquidation preference.

Term Sheet 227

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

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 All of the deals had a liquidation preference of 1x or more. However, few of the deals went beyond a simple 1x non-participating preference share.

Liquidation Preference 60

Liquidation Preference Participating Preferred Valuation IPO 60

Gust

OCTOBER 17, 2011

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” Liquidation preference.

Term Sheet 158

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

K9 Ventures

JUNE 5, 2015

Low supply of companies with traction drove the valuations and deal sizes up. In that presentation, I said that Seed is not the first round of financing any more and that K9’s investments were mostly “pre-seed”. Valuations are rising to match. The risk here is what I refer to as the curse of over-capitalization. The Epilogue.

Seed Stage 48

Seed Stage Venture Capital Early Stage Valuation 48

www.mattbartus.com

DECEMBER 9, 2012

How to pump up your VC valuation. 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. One possibility is to negotiate a higher valuation and offer warrants (i.e., Home About Matt Client references Contact. 10,000,000.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Both Sides of the Table

SEPTEMBER 6, 2010

We set our sites on our IPO price and then worked back to our current valuation and showed potential employees what we thought they could earn (with all legal caveats) if the company was successful. There’s a difference between companies wanting to hide valuations and investors doing so. I prefer percentages (e.g.

Stock Options 294

Stock Options Stock Valuation Liquidation Preference 294

ithacaVC

APRIL 25, 2014

This cap table can be used by a pre-funded startup and then a financing can be layered in. For example, cell E2 is the spot to put in the negotiated pre-money valuation. The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O).

Cap Table 79

Cap Table Preferred Stock Pre-Money Valuation Liquidation Preference 79

www.readwriteweb.com

DECEMBER 29, 2011

While certainly not every business needs to raise venture financing, it is the path for many high-growth technology startups. This includes things like how liquidation preferences impact future rounds and ultimate liquidity, to why VCs ask to expand an option pool before investing as part of their term sheet.

Cap Table 47

Cap Table Term Sheet Liquidation Preference Technical Review 47

Feld Thoughts

JUNE 2, 2015

Or, if you just want the paragraph, it’s: “If this note converts at a price higher than the cap that you have been given you agree that in the conversion of the note into equity you agree to allow your stock to be converted such that you will receive no more than a 1x non-participating liquidation preference plus any agreed interest.”.

Liquidation Preference 70

Liquidation Preference Cap Table Angel Investor Post-Money Valuation 70

K9 Ventures

MARCH 23, 2011

The convertible note was really intended as an instrument for a “bridge financing” – when an equity round was imminent, and likely to occur, but the company needed some money in between. In that case, it made good sense to have a debt instrument, where the note holder then converted into equity when the financing occurred.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

ithacaVC

DECEMBER 13, 2013

The share price is calculated by taking the pre-money valuation and dividing it by the number of shares outstanding pre-money. So Share Price (SP) = Pre-Money Valuation (PMV) / Shares Outstanding (SO). That is normal for a pre-money % as it will drop down to about 10% post money depending on size of round and valuation.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Professor VC

APRIL 1, 2010

One comment made by Jason was that angels tend to be less sensitive than VCs on valuation and can potentially make it difficult to get a venture financing done at acceptable valuation. We are typically looking at either smaller exits or require a lower valuation to get a reasonable step-up to a venture round. Newer Post.

Term Sheet 32

Term Sheet Angel Investor San Jose Venture Capital 32

genylabs.typepad.com

SEPTEMBER 24, 2011

I wont bother going into details on start-up financing terms ( see this post for an overview of typical VC terms) except to say if you dont know and understand: the firms cap table and valuation. where your stock sits in the liquidity preference stack. what rights and preferences the founders and the other investors have.

Equity 40

Equity Technical Review San Jose Stock 40

Startup Company Lawyer

JANUARY 31, 2011

Automatic conversion: on a $1M equity financing with no conversion discount and no price cap , provided that the transaction documents provide for a right to purchase a pro rata share of future financings. (I Optional maturity conversion : into Series AA Preferred Stock based on a $5M valuation.

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

Feld Thoughts

FEBRUARY 28, 2023

Corporate law: In Germany, most companies in general and most VC-financed companies are structured in the legal form of a “Gesellschaft mit beschränkter Haftung” (GmbH). Often, this integration results in VC-financed GmbH companies having little to do with the GmbH as envisaged by the law.

Germany 165

Germany Liquidation Preference Option Pool Advisory Board 165

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." " They’re saying "He invested in Google."

Angel Investor 103

Angel Investor Early Stage Equity Valuation 103

Scott Edward Walker

AUGUST 31, 2011

Which financing sources should they consider? At what valuation and on what terms? Because this is only a $725K investment, a good lawyer will recommend structuring the investment as a convertible note or a “Series Seed” financing , rather than a full-blown Series A. How should the founders divide the initial stock ownership?

Silicon Valley 45

Silicon Valley Term Sheet Liquidation Preference Redemption 45

Altgate

DECEMBER 16, 2010

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← More on Liquidation Preferences Happy Holidays → Where Do Tech VCs Invest? The data set is about 1,200 rounds of financing for US tech companies that completed the 2010 CompStudy survey.

Liquidation Preference 59

Liquidation Preference Early Stage Venture Capital Later Stage 59

abovethecrowd.com

MAY 20, 2013

There are common stock, common options, and as many as three to five different layers of preferred stock, each with a specific liquidation preference. Private company valuation techniques are particularly specious (this contrasts with a public company that every day has a definitive market capitalization).

Merger 53

Merger Institutional Investors Liquidation Preference Preferred Stock 53

K9 Ventures

NOVEMBER 21, 2011

You raised a Series A round, a Series B round, and this year are just about to raise a big Series C round at a great valuation. if someone else were to go and sell Common Stock in the company, it wouldn’t be valued the same way, especially as there isn’t really a liquid market for it).

Founder 87

Founder Common Stock Preferred Stock Stock 87

K9 Ventures

NOVEMBER 21, 2011

You raised a Series A round, a Series B round, and this year are just about to raise a big Series C round at a great valuation. if someone else were to go and sell Common Stock in the company, it wouldn’t be valued the same way, especially as there isn’t really a liquid market for it).

Founder 84

Founder Common Stock Preferred Stock Stock 84

Startup Company Lawyer

FEBRUARY 21, 2010

Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless. If you can’t figure this out yourself, you should probably build a liquidation preference spreadsheet to model how liquidation preferences work depending on M&A transaction value.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

Both Sides of the Table

SEPTEMBER 8, 2012

It has both a “full rachet” and “multiple liquidation preferences.” But Paul Graham really did have a point in his “ high resolution fundraising ” post – that there is a problem – particularly in angel financing – with herding cats. ” I wrote about it here.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

abovethecrowd.com

FEBRUARY 24, 2015

Historically, different financial institutions specialized in different stages, because the assessment of risk and opportunity was considered unique at each stage — for example, a seed investor was unlikely to do late-stage financing, and vice versa. These liquidation preferences give the investor a debt-like downside protection.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40