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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

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.

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.

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.

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

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.

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

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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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.

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.

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.

3 Venture Capital Deals You Should Never Make

Inc Startups

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.

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.

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. . .

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.

4 Things That Work More Often Than Not For Mobile Landing Pages

ConversionXL

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.

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".

Surprising Insights From HubSpot's $35M Mezzanine Round

OnStartups

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.

9 Things to Know About Influencing Purchasing Decisions

ConversionXL

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.

How do the sample Series Seed financing documents differ from typical Series A financing documents?

Startup Company Lawyer

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.

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 to Divide Equity to Startup Founders, Advisors, and Employees

thinkspace.com

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.

Venture Capital Deal Buzz - Don't Rule Out LivingSocial

Recent Buzzes - VC Experts, Inc.

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.

5 Principles of Persuasive Web Design

ConversionXL

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.

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Angels and VCs: Don’t be greedy even if you can.

Berkonomics

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.

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.

Everything You Ever Wanted to Know About Convertible Note Seed Financings (But Were Afraid To Ask) – Part 1

Scott Edward Walker

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.

Want to Raise Venture Capital More Easily? Clean Up Your Own Shite First

Both Sides of the Table

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.

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.

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.

Get Funded/50 Questions you should ask before raising venture capital – the journey from a series of blog posts to a book

The Equity Kicker

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.

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.

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.&#.

[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.

Startup Equity For Employees

www.payne.org

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.

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.

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.

Fenwick & West - Internet/Digital Media and Software Industries Silicon Valley and Seattle 2010

Recent Buzzes - VC Experts, Inc.

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.

The Truth About Early Stage Pre-Money Valuations

Ask the Angels

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.