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
Most sophisticated investors will take either a promissory note or preferred stock, both of which come before founder or management stock in a sale or liquidation. Further, preferred stock holders can be recipient of accrued dividends in a sale or liquidation. MORE
If you’d like more people to take action, make the preferred actions ‘default’ Of course, this can be abused – like RyanAir makes buying travel insurance a default option and Vistaprint used to enroll people in their “membership” by default. 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
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
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
People don’t often know why they prefer something. Most of our preferences are learned and largely formed by social norms and expectations that producers have a strong hand in shaping. Now that has become what the consumer prefers. Why people prefer unlimited plans. MORE
Liquidation Preference for the Current Round. Multiple of the Liquidation Preference: 1x; 2x; 3x; > 3x. Type of Preferred Stock. Participating Preferred. Capped Participating Preferred. By Erin Griffith, Contributing Editor. Groupon may have raised, like , a billion dollars , but that doesn't mean it'll rule discounted online commerce forever. Social shopping competitors are afoot. Take LivingSocial, the second largest player in group-buying. MORE
Founders Institute Plain Preferred Term Sheet (by WSGR – disclaimer, I represent the Founders Institute and was involved in drafting this document). To differentiate it from typical “Series A&# preferred stock, which comes with certain expectations with regard to rights. There is no real rule to what a particular series of preferred stock is called. Dividend preference. TheFunded released their “Plain Preferred&# term sheet in August 2009. 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
The posts will assume very little, if any, prior knowledge and should be useful to everyone from newbies to the industry to those who have been around venture capital a fair bit and have a decent understanding, but are a bit hazy around the edges on some of the more detailed points e.g. ‘weighted average anti-dilution’ or ‘1x participating preference share’ I think the posts deliver pretty well on this objective, but our challenge now is to make them into a book. 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
In large measure, at least in organized angel groups and venture capital firms, due diligence work is done by deal leads and other participants in a very hands-on way. By Al Schneider. 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
participation) in their deals to try to reach higher return levels, while the public folks will likely be more flexible. In order to protect themselves from that risk, they will ask for participating preferred stock that, for instance, will put a floor on their return of 2X. The following is a post from my friend and co-founder/CEO of HubSpot , Brian Halligan. HubSpot just closed its mezzanine round, so I thought I’d share some surprising things I learned during the process. MORE
ii) why are convertible notes issued instead of shares of common or preferred stock? In the context of a seed financing, the debt typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing. 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
2 Stock Classes: Common and Preferred. Stock Classes: Common and Preferred. Most venture-funded startups have different classes of stock: common and various flavors of preferred. Preferred stock classes typically go to investors, and in some cases founders (usually where the founders have already invested some of their own money to build the company). By convention, preferred stock classes are lettered, increasing for each round of funding: Series A, Series B, etc. MORE
Investors in these financings also have deeper pockets with the ability to participate in later rounds. Financing Structure: Preferred Stock. Comment: Convertible notes were used more frequently in smaller financings, while preferred stock was more prevalent in larger financings. Below is the average size of investment for investors who invested at least $100,000, broken down by type of investor and between Preferred Stock financing and Convertible Note financing. 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
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. 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
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
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
Furthermore, the same study found that an incredible 100% of participants preferred sites with sticky navigation bars, despite often not knowing why. Let’s talk about the collective pain in everyone’s marketing ass. Pretty much everyone’s mobile conversions suck. This isn’t a secret. 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
Is the preference structure for preferred shareholders at the startup you work at Standard Preferred or Participating Preferred? Call Us: +1-855-629-6200. About. Mission Statement. Locations. Our Team. Press. Community. Careers. Member Coordinator. Bookkeeper. 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
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
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
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
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 Preferred Related Topics 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
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.
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.
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 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
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.
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
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,
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.
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.
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.
Inc Startups
NOVEMBER 5, 2013
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.
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.
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. . .
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.
ConversionXL
MAY 31, 2016
Furthermore, the same study found that an incredible 100% of participants preferred sites with sticky navigation bars, despite often not knowing why. Let’s talk about the collective pain in everyone’s marketing ass. Pretty much everyone’s mobile conversions suck. This isn’t a secret.
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".
OnStartups
NOVEMBER 5, 2012
participation) in their deals to try to reach higher return levels, while the public folks will likely be more flexible. In order to protect themselves from that risk, they will ask for participating preferred stock that, for instance, will put a floor on their return of 2X. The following is a post from my friend and co-founder/CEO of HubSpot , Brian Halligan. HubSpot just closed its mezzanine round, so I thought I’d share some surprising things I learned during the process.
ConversionXL
MARCH 19, 2012
People don’t often know why they prefer something. Most of our preferences are learned and largely formed by social norms and expectations that producers have a strong hand in shaping. Now that has become what the consumer prefers. Why people prefer unlimited plans.
Startup Company Lawyer
MARCH 14, 2010
Founders Institute Plain Preferred Term Sheet (by WSGR – disclaimer, I represent the Founders Institute and was involved in drafting this document). To differentiate it from typical “Series A&# preferred stock, which comes with certain expectations with regard to rights. There is no real rule to what a particular series of preferred stock is called. Dividend preference. TheFunded released their “Plain Preferred&# term sheet in August 2009.
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.
thinkspace.com
SEPTEMBER 7, 2012
Is the preference structure for preferred shareholders at the startup you work at Standard Preferred or Participating Preferred? Call Us: +1-855-629-6200. About. Mission Statement. Locations. Our Team. Press. Community. Careers. Member Coordinator. Bookkeeper.
Recent Buzzes - VC Experts, Inc.
FEBRUARY 16, 2011
Liquidation Preference for the Current Round. Multiple of the Liquidation Preference: 1x; 2x; 3x; > 3x. Type of Preferred Stock. Participating Preferred. Capped Participating Preferred. By Erin Griffith, Contributing Editor. Groupon may have raised, like , a billion dollars , but that doesn't mean it'll rule discounted online commerce forever. Social shopping competitors are afoot. Take LivingSocial, the second largest player in group-buying.
ConversionXL
APRIL 23, 2013
If you’d like more people to take action, make the preferred actions ‘default’ Of course, this can be abused – like RyanAir makes buying travel insurance a default option and Vistaprint used to enroll people in their “membership” by default.
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.
Scott Edward Walker
APRIL 9, 2012
ii) why are convertible notes issued instead of shares of common or preferred stock? In the context of a seed financing, the debt typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.
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.
Berkonomics
OCTOBER 1, 2015
Most sophisticated investors will take either a promissory note or preferred stock, both of which come before founder or management stock in a sale or liquidation. Further, preferred stock holders can be recipient of accrued dividends in a sale or liquidation.
Dshen
MAY 6, 2015
You can guarantee there are many preferences (see liquidation and participating preferences) in the distribution of exit capital.
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
JULY 4, 2012
The posts will assume very little, if any, prior knowledge and should be useful to everyone from newbies to the industry to those who have been around venture capital a fair bit and have a decent understanding, but are a bit hazy around the edges on some of the more detailed points e.g. ‘weighted average anti-dilution’ or ‘1x participating preference share’ I think the posts deliver pretty well on this objective, but our challenge now is to make them into a book.
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.
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.&#.
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.
www.payne.org
SEPTEMBER 22, 2011
2 Stock Classes: Common and Preferred. Stock Classes: Common and Preferred. Most venture-funded startups have different classes of stock: common and various flavors of preferred. Preferred stock classes typically go to investors, and in some cases founders (usually where the founders have already invested some of their own money to build the company). By convention, preferred stock classes are lettered, increasing for each round of funding: Series A, Series B, etc.
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.
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.
Recent Buzzes - VC Experts, Inc.
APRIL 13, 2011
Investors in these financings also have deeper pockets with the ability to participate in later rounds. Financing Structure: Preferred Stock. Comment: Convertible notes were used more frequently in smaller financings, while preferred stock was more prevalent in larger financings. Below is the average size of investment for investors who invested at least $100,000, broken down by type of investor and between Preferred Stock financing and Convertible Note financing.
Ask the Angels
FEBRUARY 8, 2011
In large measure, at least in organized angel groups and venture capital firms, due diligence work is done by deal leads and other participants in a very hands-on way. By Al Schneider.
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