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. MORE
We continue our discussion of the Charter provisions with the liquidation preference, which is the most important economic term in the term sheet after the valuation because it establishes the relative rights of the investors and the common stockholders with respect to assets available for distribution when the company winds up its business. The model term sheet includes three alternative provisions for the liquidation preference. MORE
Participants in this round were Norwest Venture Partners and Sequoia Capital. Liquidation Preference: Pari Passu with other series of Preferred. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. MORE
We continue our discussion of the Charter provisions with the liquidation preference, which is the most important economic term in the term sheet after the valuation because it establishes the relative rights of the investors and the common stockholders with respect to assets available for distribution when the company winds up its business. The model term sheet includes three alternative provisions for the liquidation preference. MORE
Participants in this recent round included Good Energies, Sail Ventures, Second Avenue Partners, Energy Capital Partners, and TIAA-CREF Green Building Technology fund. Liquidation Preference: Senior. Multiple of the Liquidation Preference: 1x. Participation Cap: 3x. MORE
This week we are going to take a look at the recent filing and authorization of new Series C Preferred shares for KemPharm, Inc. In reviewing this recent Amended and Restated Articles of Incorporation, there is a new series of preferred (Series C Preferred) being authorized. MORE
Within the VAT, we report Liquidation Preference as the order in which the liquidation amounts will be distributed. (Ex: This is assumed that if Preferred is issued, then all Preferred Stock is Senior to the Common Stock unless stated otherwise.). Below is an example from an actual Restated Certificate of Incorporation in our database where you would/could find the details of the Liquidation Preference and the Liquidation Multiple. MORE
A liquidation preference is exactly what it sounds like, priority treatment for certain stockholders upon the liquidation, sale, merger, IPO or dissolution of a company. It is a typical Series Preferred Stock right in venture financing transactions. The current financing market, as well as the structure of your prior Series Preferred rounds, will drive the type of liquidation preference you can negotiate for yourself. Liquidation Preference Per Share. . . MORE
Participating in this funding was Northwest Technology Ventures. Liquidation Preference: N/A. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: 2x. MORE
The deal documents called the preferred stock “Series Seed&# shares but after opening up the documents I quickly realized the deal terms were NOT the same as those in the well-known Series Seed document set. For example, the well-known Series Seed has a 1x non-participating liquidation preference , while the version I reviewed had a 1x participating preference. Preferred Stock MORE
’ Participating preferred is less common. Just three months ago, 51% of deals had participating preferred. Participating preferred is a way for investors to try to ensure they get their money back even if the company doesn’t have a great exit. MORE
Biotechnology deals can be slightly more onerous than Software deals based on the increased use of participating preferred stock. Preferred Stock. Participating Preferred stock was used more frequently in Biotechnology deals versus the Software deals. MORE
That's the case with the issue of the participating preferred. Yesterday, I came upon this tweet by Vijaya Sagar Vinnakota : So I clicked thru to the first link and found a post I had written about participating preferred in 2004. MORE
I think the VC business grew up in a few small of offices in Boston, New York, and San Francisco, and the dozens—maybe as many as a hundred—of main participants, along with their lawyers, came up with structures that made sense to them. Like a great software product that keeps getting better and better as it ages, the classic book by Brad Feld and Jason Mendelson , Venture Deals , is now on its third version. MORE
These are typically called “ participating preferred ” structures, and are quite uncommon in West Coast VC deals these days, although they were once more common a couple of decades ago, and are still seen in some East Coast deals. MORE
Week three’s breakdown covered topics like how hard momentum is to turn around, and how participating preferred stock works. I’ve been writing up reviews of this season’s Shark Tank pitches from a silicon valley VCs perspective. MORE
Today, we’re tackling participating versus non-participating preferred stock, a fundamental economic term in VC deals that goes to the heart of the business agreement between investors and management in connection with a sale of the company. Participating versus non-participating: what’s the difference? This post by Ian Engstrand first appeared on Founders Workbench. MORE
Pari-Passu Liquidation Preference. Multiple of Liquidation Preference was more prevalent within the Non-Bay Area deals as well. Participating Preferred. in 12% of the deals, and of those, 83% had the penalty of "Conversion of Preferred Stock into Common Stock". MORE
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. Last May law firm Fenwick and West published an analysis of the 37 US unicorn deals that happened in the twelve months ending 31st March 2015. MORE
Instead, you typically need a “warm referral” (or introduction) from someone they respect and trust — preferably a successful founder whom they have backed. MORE
The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). The larger the preferred stock liquidation preference the larger the impact of participating preferred. Columns I and J are important as they show the % of preferred stock ownership compared only to preferred stock outstanding. MORE
Most long term venture industry insiders prefer operating in a steady climate where companies don’t have to follow highly risky strategies just to stay competitive. I will look into redressing that balance, but my first thought is that because of current practices/trends towards non-participating preference shares and early founder/employee/angel investor liquidity this is the one front on which we’re not doing too badly. MORE
Multiple Liquidation Preference When you decide to sell your company, or it''s otherwise liquidated, investors usually have the right to get their money back before the founders. But a multiple liquidation preference gives them much more--to the tune of 1.25 Yes, you need cash. MORE
Participating in this round was Beringea LLC. Liquidation Preference: Pari Passu. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: No. MORE
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. Their response was that we should be happy they didn''t ask for a participating preference on top of the seniority. MORE
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. This is part of my ongoing series “ Start Up Advice &# but I’d really like to call this post, “VC Advice.&#. MORE
Participating in this round of funding was Liahona Ventures. Liquidation Preference: Pari Passu. Multiple of the Liquidation Preference: 1.5x. Type of Preferred Stock: Participating Preferred. Participation Cap: No. MORE
Convertible vs. Participating Preferred. Liquidation Preferences. A few days ago I answered a question on AsktheVC about modeling cap tables. After a quick email conversation with Jeff Boardman (founder of LearnVC ), I realize I had left his product off the list. Jeff has done a nice job building a site that both models a cap table and provides a lot of information to empower entrepreneurs both with educational resources and software tools. MORE
Things like “ participating preferred stock &# in legalese unsurprisingly never actually call out, “hey, this is the participating preferred language.&# We got a3x participating liquidation preference with interest (not participating with a 3x cap, but 3x participating. MORE
I know I should know this, but I have no idea what participating preferred means — and who should prefer it. Note: This is intended be a light-hearted piece that hits just close enough on some counts to (hopefully) be funny. Please don't take it too seriously. (Oh, MORE
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). As most of you probably know, LP is one of the fundamental economic attributes of preferred stock that preferred shareholders enjoy. Nothing better than sitting at LGA writing blog posts. MORE
Liquidation Preference: Pari Passu with other Series Preferred. Multiple of the Liquidation Preference: 0 - 1x. Type of Preferred Stock: Participating Preferred. Capped Participating Preferred: Yes / 1.5x. MORE
Participating in this recent round were Kleiner Perkins Caufield & Byers, Mohr Davidow Ventures, Pappas Ventures, and General Electric Venture Capital. Liquidation Preference for the Current Round?Senior. Multiple of the Liquidation Preference: 1x; 2x; 3x; > 3x. ?1x. MORE
According to an Avast survey of close to 200 Singaporeans, the Internet security solutions provider discovered that a whopping 86 percent of survey participants prefer to join unprotected Wi-Fi networks over secure ones that require a password. MORE
Next, we check that we’re safe from any particularly onerous terms like participation preferred. You’re facing two term sheets and have boiled them down to the most relevant facts, listed below. Which do you choose? Deal 1. 1mm total. 500k now, plus commitment to help close $500k more from other angels. Roughly 33% dilution for full round ($2mm pre-money). Deal 2. 1.25mm total. 250k now, plus 2 tranches for another $1mm based on performance goals. MORE
What is the difference between Conventional Convertible Preferred (non-Participating Preferred) and Participating Preferred Stock ? How do these effect the outcome for investors when a non-IPO exit is about to happen? See for yourself in these simple examples MORE
Participants of this round included Granite Ventures, JCP Capital , and Peterson Ventures. Liquidation Preference: Senior. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: No. MORE
get both the carve out amount and the equity value; I guess double dipping is only for VCs that have participating preferred stock ). In my earlier post on management carve out plans (see it here ), I gave a detailed description of what these plans are and why boards of VC-backed companies often use them. MORE
Participating in this recent round was Beringea LLC. Liquidation Preference: Pari Passu. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: No. MORE
It turns out that ‘time bomb’ is the much maligned and, I suspect, little understood, liquidation preference. To be clear, liquidation preferences are sometimes used badly and founders should generally turn away from investors who ask for multiple liquidation preferences. However, most of the later rounds or companies raise feature simple 1x liquidation preferences and we’re fine with that. MORE
I can just picture Mr. Rogers saying "Children, can you say participating preferred stock with an uncapped 3x liquidation preference and a full ratchet?" Opening Day Barron Park Elementary School (9/8/98) "Make new friends, but keep the old. One is silver, the other is gold. MORE
In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., The amount of the liquidation preference is usually expressed as a multiple, with the most common liquidation preference being “1X non-participating.” Preferred Stock MORE
Participating in this round were Matrix Partners and General Atlantic LLC. Liquidation Preference: Senior. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: Yes /.5x. MORE
Participating Preferred Related Topics 
A VC : Venture Capital and Technology
MAY 1, 2010
That's the case with the issue of the participating preferred. Yesterday, I came upon this tweet by Vijaya Sagar Vinnakota : So I clicked thru to the first link and found a post I had written about participating preferred in 2004.
Recent Buzzes - VC Experts, Inc.
OCTOBER 18, 2011
What is the difference between Conventional Convertible Preferred (non-Participating Preferred) and Participating Preferred Stock ? How do these effect the outcome for investors when a non-IPO exit is about to happen? See for yourself in these simple examples
Early Growth Financial Services
FEBRUARY 3, 2015
Today, we’re tackling participating versus non-participating preferred stock, a fundamental economic term in VC deals that goes to the heart of the business agreement between investors and management in connection with a sale of the company. Participating versus non-participating: what’s the difference? This post by Ian Engstrand first appeared on Founders Workbench.
Ask The VC
AUGUST 23, 2011
Convertible vs. Participating Preferred. Liquidation Preferences. A few days ago I answered a question on AsktheVC about modeling cap tables. After a quick email conversation with Jeff Boardman (founder of LearnVC ), I realize I had left his product off the list. Jeff has done a nice job building a site that both models a cap table and provides a lot of information to empower entrepreneurs both with educational resources and software tools.
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. Last May law firm Fenwick and West published an analysis of the 37 US unicorn deals that happened in the twelve months ending 31st March 2015.
The Startup Lawyer
JANUARY 10, 2012
In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., The amount of the liquidation preference is usually expressed as a multiple, with the most common liquidation preference being “1X non-participating.” Preferred Stock
VC Deal Lawyer
FEBRUARY 15, 2010
A liquidation preference is exactly what it sounds like, priority treatment for certain stockholders upon the liquidation, sale, merger, IPO or dissolution of a company. It is a typical Series Preferred Stock right in venture financing transactions. The current financing market, as well as the structure of your prior Series Preferred rounds, will drive the type of liquidation preference you can negotiate for yourself. Liquidation Preference Per Share. . .
ithacaVC
APRIL 25, 2014
The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). The larger the preferred stock liquidation preference the larger the impact of participating preferred. Columns I and J are important as they show the % of preferred stock ownership compared only to preferred stock outstanding.
A VC : Venture Capital and Technology
DECEMBER 19, 2016
I think the VC business grew up in a few small of offices in Boston, New York, and San Francisco, and the dozens—maybe as many as a hundred—of main participants, along with their lawyers, came up with structures that made sense to them. Like a great software product that keeps getting better and better as it ages, the classic book by Brad Feld and Jason Mendelson , Venture Deals , is now on its third version.
Inc Startups
AUGUST 2, 2012
’ Participating preferred is less common. Just three months ago, 51% of deals had participating preferred. Participating preferred is a way for investors to try to ensure they get their money back even if the company doesn’t have a great exit.
VC Ready Blog
JUNE 29, 2010
We continue our discussion of the Charter provisions with the liquidation preference, which is the most important economic term in the term sheet after the valuation because it establishes the relative rights of the investors and the common stockholders with respect to assets available for distribution when the company winds up its business. The model term sheet includes three alternative provisions for the liquidation preference.
Both Sides of the Table
JULY 22, 2010
Things like “ participating preferred stock &# in legalese unsurprisingly never actually call out, “hey, this is the participating preferred language.&# We got a3x participating liquidation preference with interest (not participating with a 3x cap, but 3x participating.
The Equity Kicker
NOVEMBER 9, 2016
It turns out that ‘time bomb’ is the much maligned and, I suspect, little understood, liquidation preference. To be clear, liquidation preferences are sometimes used badly and founders should generally turn away from investors who ask for multiple liquidation preferences. However, most of the later rounds or companies raise feature simple 1x liquidation preferences and we’re fine with that.
VC Ready Blog
JUNE 29, 2010
We continue our discussion of the Charter provisions with the liquidation preference, which is the most important economic term in the term sheet after the valuation because it establishes the relative rights of the investors and the common stockholders with respect to assets available for distribution when the company winds up its business. The model term sheet includes three alternative provisions for the liquidation preference.
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.
Recent Buzzes - VC Experts, Inc.
AUGUST 12, 2010
Participants in this round were Norwest Venture Partners and Sequoia Capital. Liquidation Preference: Pari Passu with other series of Preferred. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred.
The Startup Lawyer
JULY 13, 2011
The deal documents called the preferred stock “Series Seed&# shares but after opening up the documents I quickly realized the deal terms were NOT the same as those in the well-known Series Seed document set. For example, the well-known Series Seed has a 1x non-participating liquidation preference , while the version I reviewed had a 1x participating preference. Preferred Stock
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). As most of you probably know, LP is one of the fundamental economic attributes of preferred stock that preferred shareholders enjoy. Nothing better than sitting at LGA writing blog posts.
Recent Buzzes - VC Experts, Inc.
AUGUST 26, 2010
Liquidation Preference: Pari Passu with other Series Preferred. Multiple of the Liquidation Preference: 0 - 1x. Type of Preferred Stock: Participating Preferred. Capped Participating Preferred: Yes / 1.5x.
Lightspeed Venture Partners
OCTOBER 1, 2012
These are typically called “ participating preferred ” structures, and are quite uncommon in West Coast VC deals these days, although they were once more common a couple of decades ago, and are still seen in some East Coast deals.
Professor VC
JUNE 6, 2016
I can just picture Mr. Rogers saying "Children, can you say participating preferred stock with an uncapped 3x liquidation preference and a full ratchet?" Opening Day Barron Park Elementary School (9/8/98) "Make new friends, but keep the old. One is silver, the other is gold.
Scott Edward Walker
NOVEMBER 26, 2017
Instead, you typically need a “warm referral” (or introduction) from someone they respect and trust — preferably a successful founder whom they have backed.
YoungUpstarts
JUNE 4, 2015
According to an Avast survey of close to 200 Singaporeans, the Internet security solutions provider discovered that a whopping 86 percent of survey participants prefer to join unprotected Wi-Fi networks over secure ones that require a password.
ithacaVC
NOVEMBER 18, 2011
get both the carve out amount and the equity value; I guess double dipping is only for VCs that have participating preferred stock ). In my earlier post on management carve out plans (see it here ), I gave a detailed description of what these plans are and why boards of VC-backed companies often use them.
Recent Buzzes - VC Experts, Inc.
AUGUST 31, 2011
Pari-Passu Liquidation Preference. Multiple of Liquidation Preference was more prevalent within the Non-Bay Area deals as well. Participating Preferred. in 12% of the deals, and of those, 83% had the penalty of "Conversion of Preferred Stock into Common Stock".
Recent Buzzes - VC Experts, Inc.
AUGUST 5, 2010
Participating in this recent round were Kleiner Perkins Caufield & Byers, Mohr Davidow Ventures, Pappas Ventures, and General Electric Venture Capital. Liquidation Preference for the Current Round?Senior. Multiple of the Liquidation Preference: 1x; 2x; 3x; > 3x. ?1x.
Recent Buzzes - VC Experts, Inc.
NOVEMBER 4, 2010
Participating in this round was Beringea LLC. Liquidation Preference: Pari Passu. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: No.
Recent Buzzes - VC Experts, Inc.
OCTOBER 21, 2010
Participants in this recent round included Good Energies, Sail Ventures, Second Avenue Partners, Energy Capital Partners, and TIAA-CREF Green Building Technology fund. Liquidation Preference: Senior. Multiple of the Liquidation Preference: 1x. Participation Cap: 3x.
Recent Buzzes - VC Experts, Inc.
NOVEMBER 10, 2010
Participating in this funding was Northwest Technology Ventures. Liquidation Preference: N/A. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: 2x.
OnStartups
FEBRUARY 22, 2012
I know I should know this, but I have no idea what participating preferred means — and who should prefer it. Note: This is intended be a light-hearted piece that hits just close enough on some counts to (hopefully) be funny. Please don't take it too seriously. (Oh,
Recent Buzzes - VC Experts, Inc.
SEPTEMBER 16, 2010
Participating in this recent round was Beringea LLC. Liquidation Preference: Pari Passu. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: No.
Recent Buzzes - VC Experts, Inc.
SEPTEMBER 2, 2010
Participating in this round were Matrix Partners and General Atlantic LLC. Liquidation Preference: Senior. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: Yes /.5x.
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. Their response was that we should be happy they didn''t ask for a participating preference on top of the seniority.
Recent Buzzes - VC Experts, Inc.
JULY 29, 2010
Within the VAT, we report Liquidation Preference as the order in which the liquidation amounts will be distributed. (Ex: This is assumed that if Preferred is issued, then all Preferred Stock is Senior to the Common Stock unless stated otherwise.). Below is an example from an actual Restated Certificate of Incorporation in our database where you would/could find the details of the Liquidation Preference and the Liquidation Multiple.
Lightspeed Venture Partners
OCTOBER 7, 2012
Week three’s breakdown covered topics like how hard momentum is to turn around, and how participating preferred stock works. I’ve been writing up reviews of this season’s Shark Tank pitches from a silicon valley VCs perspective.
The Equity Kicker
JANUARY 25, 2016
Most long term venture industry insiders prefer operating in a steady climate where companies don’t have to follow highly risky strategies just to stay competitive. I will look into redressing that balance, but my first thought is that because of current practices/trends towards non-participating preference shares and early founder/employee/angel investor liquidity this is the one front on which we’re not doing too badly.
Recent Buzzes - VC Experts, Inc.
SEPTEMBER 30, 2010
Participating in this round of funding was Liahona Ventures. Liquidation Preference: Pari Passu. Multiple of the Liquidation Preference: 1.5x. Type of Preferred Stock: Participating Preferred. Participation Cap: No.
Recent Buzzes - VC Experts, Inc.
SEPTEMBER 23, 2010
This week we are going to take a look at the recent filing and authorization of new Series C Preferred shares for KemPharm, Inc. In reviewing this recent Amended and Restated Articles of Incorporation, there is a new series of preferred (Series C Preferred) being authorized.
Recent Buzzes - VC Experts, Inc.
SEPTEMBER 9, 2010
Participants of this round included Granite Ventures, JCP Capital , and Peterson Ventures. Liquidation Preference: Senior. Multiple of the Liquidation Preference: 1x. Type of Preferred Stock: Participating Preferred. Participation Cap: No.
Recent Buzzes - VC Experts, Inc.
OCTOBER 7, 2010
Biotechnology deals can be slightly more onerous than Software deals based on the increased use of participating preferred stock. Preferred Stock. Participating Preferred stock was used more frequently in Biotechnology deals versus the Software deals.
The Startup Toolkit
NOVEMBER 4, 2011
Next, we check that we’re safe from any particularly onerous terms like participation preferred. You’re facing two term sheets and have boiled them down to the most relevant facts, listed below. Which do you choose? Deal 1. 1mm total. 500k now, plus commitment to help close $500k more from other angels. Roughly 33% dilution for full round ($2mm pre-money). Deal 2. 1.25mm total. 250k now, plus 2 tranches for another $1mm based on performance goals.
Dshen
MAY 6, 2015
You can guarantee there are many preferences (see liquidation and participating preferences) in the distribution of exit capital.
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. This is part of my ongoing series “ Start Up Advice &# but I’d really like to call this post, “VC Advice.&#.
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