Both Sides of the Table

APRIL 14, 2010

It’s meant to be a bit provocative but the reality is that I give this advice to entrepreneurs all the the time and I usually leave the “e&# off of the end. I normally offer this advice in the capacity of really wanting to help entrepreneurs so please bear with me. Let’s say the company had raised $15 million.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Up and Running

AUGUST 17, 2015

As I read stories of college dropouts who had successfully sold tech companies, or entrepreneurs with innovative ideas who made it big on Shark Tank, it became clear that there was no set path to startup success. C Corp versus LLC, non-competes, liquidation preferences, preferred versus common stock, and so on).

Entrepreneur 60

Entrepreneur Cofounder Angel Investor eCommerce 60

Tim Keane

JANUARY 12, 2010

Please see later version of this post on May 16, 2010 Entrepreneurs are often not experts in the area of term-sheet negotiations and all of the surrounding issues.   Investors sometimes “present” the terms they’d like and expect the entrepreneurs to react. Term-sheets and Valuations: Thinking about Negotiations.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Both Sides of the Table

SEPTEMBER 8, 2012

If you do a capped note it’s bad for the entrepreneur. It has both a “full rachet” and “multiple liquidation preferences.” Here is what I recommend very often – privately – to startup entrepreneurs for angel funding. If you do an uncapped note it’s bad for the investor.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

Both Sides of the Table

MAY 30, 2015

I’m so tired of seeing young entrepreneurs get screwed by their angel investors on convertible notes and I know I can’t convince you not to do it so I’d like to offer one simple bit of advice to help you avoid getting screwed (at least on one part of your note). It’s the silent screwing that stings.

Liquidation Preference 150

Liquidation Preference Ratchet Angel Investor Entrepreneur 150

Startup Professionals Musings

SEPTEMBER 14, 2010

Entrepreneurs sometimes assume an initial agreement with an angel is a commitment, so they start spending before any money is received. It’s true that angel investors typically do not present entrepreneurs with overly complicated deal structures, especially when compared to venture capitalists. Liquidation preference.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

Startup Professionals Musings

JANUARY 27, 2012

Entrepreneurs sometimes assume an initial agreement with an Angel is a commitment, so they start spending before any money is received. It’s true that Angel investors typically do not present entrepreneurs with overly complicated deal structures, especially when compared to venture capitalists. Liquidation preference.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 223

abovethecrowd.com

FEBRUARY 24, 2015

Buying into such a notion is dangerous – dangerous for the entrepreneur and dangerous for the investor. Lost in this conversation are the dramatic differences between a high priced private round and an IPO. Conversely, these late stage private rounds have no such pageantry or process.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

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. These are all real conversations.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Feld Thoughts

JUNE 10, 2022

I like the quote she pulled out of me in our conversation. So, as an entrepreneur, I encourage you to deal with reality. I don’t respond to many interview requests these days, but I’ll always talk to her. She has a good article today in TechCrunch titled Embrace the down round (it’s going to be okay, maybe).

Down Round 162

Down Round Ratchet Liquidation Preference Participating Preferred 162

Both Sides of the Table

SEPTEMBER 28, 2013

You know this isn’t likely to lead anywhere and frankly you didn’t quit your job to pursue your life dream of being an entrepreneur to sell 12 months later in an acquihire. The don’t understand VC liquidation preferences or multiple return expectations. But staff can’t make the delineation in their heads.

Startup 417

Startup Dilution San Diego Stock Options 417

Gust

OCTOBER 17, 2011

Entrepreneurs sometimes assume an initial agreement with an angel is a commitment, so they start spending before any money is received. It’s true that angel investors typically do not present entrepreneurs with overly complicated deal structures, especially when compared to venture capitalists. Liquidation preference.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 158

genylabs.typepad.com

SEPTEMBER 24, 2011

The Changing Face of Entrepreneurs. The Connected World of Entrepreneurs. Entrepreneur Magazine Blog. where your stock sits in the liquidity preference stack. what rights and preferences the founders and the other investors have. Business Week: Twitter for Entrepreneurs: 20 to Follow: Steve King.

Equity 40

Equity Technical Review San Jose Stock 40

K9 Ventures

MARCH 23, 2011

The typical fix for this problem is to put in a cap in the note for the pre-money price for conversion. Before the era of capped notes, entrepreneurs preferred to do notes because the note essentially deferred the valuation of the company. What percent of the company should the note holder get on conversion?

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

Feld Thoughts

FEBRUARY 9, 2016

Much of it is very short term focused and, like a giant tractor beam, draws the conversation into a very short time horizon (as in days or weeks). And, rather than rational and helpful thoughts for entrepreneurs, it often brings out the schadenfreude in even the most talented people. It’s simply not true.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Scott Edward Walker

APRIL 9, 2012

Part 3 will cover certain special issues, such as (i) what happens if the startup is acquired prior to the note’s conversion to equity? (ii) ii) what happens if the maturity date is reached prior to the note’s conversion to equity?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Feld Thoughts

JUNE 2, 2015

The other day, Mark Suster wrote a critically important post titled One Simple Paragraph Every Entrepreneur Should Add to Their Convertible Notes. As an angel investor, I have never asked for a liquidation preference on conversion that is greater than the dollars I’ve invested. Go read it – I’ll wait.

Liquidation Preference 70

Liquidation Preference Cap Table Angel Investor Post-Money Valuation 70

Scott Edward Walker

SEPTEMBER 14, 2011

I have previously discussed this issue in detail, and the importance of choosing solid investors, in my post “ Doing Deals In The New Decade: 7 Tips For Entrepreneurs ” (see tip #1). Indeed, some very pro-entrepreneur investors, like Fred Wilson , do not require no-shop provisions (see rule #4 in Fred’s post “ Competing To Win Deals ”).

Term Sheet 76

Term Sheet Due Diligence Liquidation Preference Redemption 76

VC Adventure

AUGUST 30, 2010

I think the answer to these questions are that 1) it’s not at all clear that this trend is as definitive as Graham suggests; 2) it’s a mixed bag for entrepreneurs (more positive in the short run, potentially negative in the long term); and 3) it’s clearly not a positive trend for early-stage investors. Good for investors?

Angel Investor 103

Angel Investor Early Stage Equity Valuation 103

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. Bottom line: the note holder chooses whichever option gives a lower price for conversion. So, the note holders pay $.30

Liquidation Preference 40

Liquidation Preference Pre-Money Valuation Dilution Valuation 40

Austin Startup

AUGUST 1, 2017

TL;DR: In a market that has historically idolized huge, splashy financings and exits, an increasing number of entrepreneurs are realizing that everyone else’s definition of success — particularly among certain large VCs — isn’t necessarily aligned with their own. Most individual VCs can only support about 7–10 companies at a time.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

Scott Edward Walker

JULY 27, 2011

There is, however, another set of rights with which many entrepreneurs may not be familiar: State law rights. These are rights granted to stockholders pursuant to the respective laws of the company’s State of incorporation and are often the only rights that minority common stockholders have.

Delaware 49

Delaware Liquidation Preference Redemption Los Angeles 49

David Teten

AUGUST 21, 2019

These entrepreneurs want to maintain two major options: 1) To raise VC later (or not), and/or. So you’re stuck selling mid-term, which is frequently sub-optimal for the entrepreneur. “. BK Landland observed, “At Lighter, most entrepreneurs we fund spend 10 total hours of work over 3-6 weeks to get funding. Optionality.

Revenue 60

Revenue Liquidation Preference Equity Cofounder 60

Pascal's View

DECEMBER 30, 2012

While every company founder makes trade-offs in building a company, few entrepreneurs appreciate the far-reaching implications of several critical decisions they will are required to make at the outset of a startup’s evolution. Many of these issues come to the foreground once entrepreneurs have raised money from VC’s.

Cofounder 34

Cofounder Liquidation Preference Vesting Equity 34

thestartuplawyer.com

FEBRUARY 24, 2010

Entrepreneurs often believe their startup company faces legal threats from only external sources. do not think being friends or relatives reduces the need for these difficult and/or awkward conversations. We entrepreneurs constantly try to refine our product or model, so it is only natural to think that we should refine ourselves.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

Life Beyond Code

SEPTEMBER 27, 2011

One Million by One Million is a global initiative that aims to nurture a million entrepreneurs reach a million dollars each in annual revenue and beyond by 2020, thereby creating a trillion dollars in global GDP and ten million jobs. SM: In September 2008, when the first Entrepreneur Journeys book was released, D.D.

Programming 116

Programming Silicon Valley Bootstrapping Technical Review 116