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

Agile VC

APRIL 17, 2011

liquidation preference, 6% accumulated dividend (1). Series A-1 Preferred. liquidation preference, 6% accumulated dividend. Series B Preferred. liquidation preference, 6% accumulated dividend (1). Series B-1 Preferred. liquidation preference, 6% accumulated dividend (1).

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Cofounder Dividend 113

SoCal CTO

SEPTEMBER 27, 2011

Memo to CEOs And Founders: Share The Love Consider the proceeds of a $50-million acquisition for a 100-person company that has raised $14 million with a typical liquidation preference: Because of the liquidation preference, the investors get $14 million right off the top. million.

Early Stage 391

Early Stage Equity Startup CTO Hire 391

Feld Thoughts

FEBRUARY 28, 2023

Conversion right: In Germany, there is generally no conversion right entitling the holder of preferred shares to convert them into common shares at any time. This may not seem like a big deal at first glance, but it has extensive implications under various aspects, such as the structure of the liquidation preference.

Germany 165

Germany IPO Liquidation Preference Option Pool 165

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.

Entrepreneur 150

Entrepreneur Liquidation Preference Angel Investor Ratchet 150

Feld Thoughts

JUNE 10, 2022

Rather, when you have a choice between a financing at a lower valuation and a financing with all kinds of crazy structure to try to maintain a previous valuation, negotiate the best price you can but do a clean financing with no structure. and a bunch of other things.

Down Round 162

Down Round Ratchet Valuation Liquidation Preference 162

Startup Professionals Musings

JULY 11, 2021

These normally include what percentage of the company the investor now owns, how and when tranches of money will be delivered, and even how and when you can sell your own shares (liquidation preferences).

Startup 433

Startup Term Sheet Bootstrapping Entrepreneur 433

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 Entrepreneur 417

Both Sides of the Table

JULY 25, 2011

To this day I’m still surprised how few CEOs really understand the differences between 2x liquidation preference and a liquidation preference with a 2x cap. Or what “participating preferred&# stock is and how it can screw you. Or what “flat spots&# on a cap table are.

Entrepreneur 304

Entrepreneur Liquidation Preference Term Sheet Cap Table 304

Altgate

DECEMBER 18, 2008

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← Holiday Cards Year End Management Changes → The 3X Liquidation Preference Is Back! Let’s recap how expensive a 3x liquidation preference really is. Bookmark the permalink.

Liquidation Preference 31

Liquidation Preference Venture Capital Post-Money Valuation Startup 31

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 Salary 329

Steve Blank

MARCH 16, 2016

As part of the deal you signed with your investors was a term specifying the Liquidation Preference. The liquidation preference determines how the pie is split between you and your investors when there is a liquidity event. Typically, a VC can force a sale, or even block one. You may just be along for the ride. .

Liquidity Event 120

Liquidity Event Founder Venture Capital Startup 120

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 Entrepreneur 289

Both Sides of the Table

FEBRUARY 23, 2015

This is because this “liquidation preference” gets returned to investors before you see any money – restricting the executive outcomes in mid-sized exits. In Ian’s post he rightly points out that stepping into a role with $15 million in paid-in capital that has already been spent can be a problem.

Technical Review 150

Technical Review Startup Silicon Valley Liquidation Preference 150

Feld Thoughts

JUNE 13, 2012

We’ve updated our Foundry Group web site with the new Liquidation Preference beer photo. Everyone needs a diversion. Yes – we make beer – or at least my partner Ryan McIntyre and our long time friend Matt Gallagan does. Seth as Frankenstein, Jason as Don Draper, or Ryan at Mr.

Liquidation Preference 125

Liquidation Preference Web Partner 125

Feld Thoughts

FEBRUARY 9, 2016

I’ve seen every imaginable type of liquidation preference structure, pay-to-play dynamic, preferred return, ratchet, share/option bonus, option repricing, and carveout. I suffered through the next financing after implementing a complex structure, or a sale of the company, or a liquidation.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

The Equity Kicker

OCTOBER 22, 2012

Betting too early on a billion dollar outcome and building up a big liquidation preference can turn what would otherwise have been a decent success into a failure.

Liquidation Preference 134

Liquidation Preference Web Startup Conversion 134

Scott Edward Walker

JULY 20, 2011

Whatever the issue, the advice is simple (albeit difficult to execute): in order to maintain negotiating leverage and credibility, the entrepreneur should not capitulate first.

Entrepreneur 78

Entrepreneur Private Equity Liquidation Preference Venture Capital 78

abovethecrowd.com

FEBRUARY 24, 2015

Most private company financings involve the use of preferred stock with liquidation preferences. These liquidation preferences give the investor a debt-like downside protection. In going public, all preferred shares are converted to common shares, and the pile of liquidation preferences goes away.

IPO 40

IPO Liquidation Preference Valuation Finance 40

Both Sides of the Table

MAY 13, 2013

If the money comes from professional investors it usually has a “liquidation preference” meaning that their money comes out before the founders or common stock. (If That’s why liquidation preferences exist – downside protection. Almost certainly the startup would have raised some capital.

Liquidation Preference 357

Liquidation Preference Early Stage Seed Money Venture Capital 357

Both Sides of the Table

SEPTEMBER 16, 2010

more senior to you) might be piling up liquidation preferences and tilting returns in their favor. So know that going in. And if you’re not busy being crushed (diluted) you might not notice that the people above you in the cap table (e.g. Only deep pockets can protect this from happening.

Angel Investor 283

Angel Investor Lean Dilution Silicon Valley 283

The Equity Kicker

JUNE 28, 2013

Otherwise the investors won’t make the multiple on their investment that they want and after liquidation preferences are paid the amount left for the entrepreneur may well also be disappointing. Company exits for £20m having raised £15m for 50% of the company in a 1x liquidation preference – the investor gets £17.5m

Liquidation Preference 116

Liquidation Preference Entrepreneur Valuation Startup 116

crowdSPRING Blog

MARCH 13, 2014

Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. Guerilla tips for raising venture capital | VentureBeat – crowdspring.co/P6hM3O. Does A Billion-Dollar Valuation Buy Employee Happiness? ReadWrite – crowdspring.co/1ekm5xR. 1loBthB.

Social Media 92

Social Media Small Business Startup Design 92

Berkonomics

JULY 23, 2020

Does the board declare dividends upon the preferred stock invested in order to increase the amount paid out to the preferred – at the expense of the common – shareholders, which usually includes the founder(s)? This raises the bar for venture capitalists in a marginal sale of a business.

Delaware 62

Delaware Liquidation Preference Early Stage Angel Investor 62

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.

Term Sheet 40

Term Sheet Liquidation Preference Vesting San Diego 40

The Equity Kicker

JANUARY 18, 2013

What on earth does this termsheet mean with it’s liquidation preferences, anti-dilution and protective provisions? For example, liquidation preferences are financial structures whereby rather than just getting a share of the company investors get their money back first and then get a share of the company on top.

Liquidation Preference 159

Liquidation Preference Venture Capital Dilution Entrepreneur 159

Both Sides of the Table

SEPTEMBER 8, 2012

It has both a “full rachet” and “multiple liquidation preferences.” They share in liquidation preferences pari passu and they vote as a single class. If you do a capped note it’s bad for the entrepreneur. I’m not sure why people don’t see that. ” I wrote about it here.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

Growthink Blog

JANUARY 24, 2011

One very popular "preferred right" or "preference" that adds very significant value to outside investors and is common in venture capital investments is a liquidation preference. The liquidation preference means what is sounds - namely that preferred stock holders with this right get all of their money back (i.e.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

ReadWriteStart

SEPTEMBER 2, 2011

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. I strongly recommend reading Brad Feld & Jason Mendelson's Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist.

Term Sheet 122

Term Sheet Cap Table Liquidation Preference Technical Review 122

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. And so forth.

Liquidation Preference 153

Liquidation Preference Valuation Entrepreneur Stock 153

Feld Thoughts

MAY 7, 2012

Down: Liquidation preference. And even though a term sheet might be four to eight pages long and the definitive documents might be 100 pages or more, other than economics, there are really only three things a VC needs in a deal. Up: Pro-rata rights. When things don’t go well (down), a VC wants to get their money out first.

Liquidation Preference 143

Liquidation Preference Term Sheet Entrepreneur Startup 143

A Smart Bear: Startups and Marketing for Geeks

SEPTEMBER 8, 2010

Great basic guide on VC / Startup liquidation preferences: [link]. Beware the trappings of liquidation preference | VentureBeat. Thoughts on marketing, technology commercialization and Silicon Valley startups by a high tech executive. Aug 16, 2010 at 6:15am.

Startup 216

Startup Silicon Valley Liquidation Preference Entrepreneur 216

Altgate

DECEMBER 15, 2010

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← No one wants to tell you your baby is ugly More on Liquidation Preferences → Pre-Money Valuation vs Number of Founders Posted on December 15, 2010 by admin Here’s a chart of the day worth sharing.

Pre-Money Valuation 66

Pre-Money Valuation Valuation Cofounder Founder 66

Both Sides of the Table

MARCH 1, 2016

In bad markets, they can be wiped out by recaps and liquidation preferences unless they save enough reserves to protect their positions. Another big area of concern expressed by LPs is that some seed funds may get “squeezed” in both good scenarios and bad. The data itself bears out some of these fears.

Venture Capital 150

Venture Capital LP Marketing Silicon Valley 150

The Equity Kicker

MARCH 3, 2016

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. I always wondered if companies were accepting multiple liquidation preferences in exchange for high valuations, but that was only the case in 3% of the deals analysed.

Liquidation Preference 60

Liquidation Preference Participating Preferred Valuation IPO 60

ithacaVC

JUNE 3, 2015

The punishment comes in the form of “unjust” liquidation preference that the note holders end up with when they convert at a valuation cap that is way lower than the valuation of the actual round. Each share of Series A will have a liquidation preference of $1.00 (assuming 1X preference, which is normal).

Liquidation Preference 40

Liquidation Preference Valuation Pre-Money Valuation Dilution 40