An Evolved View Of The Participating Preferred

A VC : Venture Capital and Technology

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.

Conventional Convertible Preferred vs Participating Preferred Stock

Recent Buzzes - VC Experts, Inc.

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

Startup Financing: Overview of Preferred Stock

Early Growth Financial Services

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.

Model Cap Tables With VCHub

Ask The VC

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.

Unicorn deals – not that heavily structured

The Equity Kicker

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.

Avoid Offensive Liquidation Preferences

The Startup Lawyer

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

Understanding Liquidation Preferences

VC Deal Lawyer

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. . .

Model Cap Table

ithacaVC

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.

Venture Deals 3.0

A VC : Venture Capital and Technology

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.

Entrepreneurs and VCs: Turning the Tables

Inc Startups

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.

Anatomy of a Term Sheet: Liquidation Preference

VC Ready Blog

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.

Want to Know How VC’s Calculate Valuation Differently from Founders?

Both Sides of the Table

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.

In defence of liquidation preferences

The Equity Kicker

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.

Anatomy of a Term Sheet: Liquidation Preference

VC Ready Blog

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.

One Book Every Entrepreneur and VC Should Own

Both Sides of the Table

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.

Latest Deal Terms for Unisfair, Inc.

Recent Buzzes - VC Experts, Inc.

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.

X Does Not Always Equal X

The Startup Lawyer

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

No Mess (Too Much Liquidation Preference)

ithacaVC

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.

Latest Deal Terms and Valuation for LifeLock

Recent Buzzes - VC Experts, Inc.

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.

Shark Tank Season 4 episode 3 breakdown

Lightspeed Venture Partners

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.

So You Wanna be a VC?

Professor VC

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.

How to Raise a Seed Round: Three Basic Tips for Founders

Scott Edward Walker

Instead, you typically need a “warm referral” (or introduction) from someone they respect and trust — preferably a successful founder whom they have backed.

[Singapore] Risky Public Wif-Fi Use Puts Mobile Users At Risk Of Identity Theft And Privacy Loss: Avast

YoungUpstarts

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.

Management Carve Out Plan – Added Thought

ithacaVC

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.

Q2 2011 Non-Silicon Valley Deal Terms

Recent Buzzes - VC Experts, Inc.

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".

Latest Deal Terms for CardioDX, Inc. and Intrapace, Inc.

Recent Buzzes - VC Experts, Inc.

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.

Latest Deal Terms for gloStream, Inc.

Recent Buzzes - VC Experts, Inc.

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.

Latest Deal Terms for Ice Energy, Inc.

Recent Buzzes - VC Experts, Inc.

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.

Latest Deal Terms for DesignMedix, Inc.

Recent Buzzes - VC Experts, Inc.

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.

Things Entrepreneurs Never Confess To Their VCs

OnStartups

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,

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Latest Deal Terms for Myine Electronics

Recent Buzzes - VC Experts, Inc.

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.

Latest Deal Terms for Gilt Groupe, Inc.

Recent Buzzes - VC Experts, Inc.

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.

Pari Passu or F.U.little guy

Professor VC

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.

How Deal Terms Affect Valuation & Liquidity

Recent Buzzes - VC Experts, Inc.

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.

Shark Tank Season 4 week 4 breakdown

Lightspeed Venture Partners

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.

Sustainable startup growth and venture capital

The Equity Kicker

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.

Latest Deal Terms for Sneaky Games

Recent Buzzes - VC Experts, Inc.

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.

Latest Deal Terms for KemPharm

Recent Buzzes - VC Experts, Inc.

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.

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Latest Deal Terms and Valuation for HireVue, Inc.

Recent Buzzes - VC Experts, Inc.

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.

Deal Activity and Valuations in Software and Biotech

Recent Buzzes - VC Experts, Inc.

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.

Two investment deals are on the table. Which do you sign?

The Startup Toolkit

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.

Angel Investing at Today's Market Rates is a Losing Proposition

Dshen

You can guarantee there are many preferences (see liquidation and participating preferences) in the distribution of exit capital.

Should Founders Be Allowed to Take Money off the Table?

Both Sides of the Table

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.&#.