Both Sides of the Table

JULY 25, 2011

tl;dr version: If you’re an entrepreneur or VC or will be working in this industry - buy this. 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. This article originally ran on TechCrunch.

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

Scott Edward Walker

JULY 20, 2011

Introduction I’ve been doing deals as a corporate lawyer for 17+ years, and there are certain fundamental mistakes that I’ve seen entrepreneurs make over and over again. It is critical that entrepreneurs understand this dynamic. Accordingly, I thought it would be helpful to share three basic tips in connection with doing deals.

Private Equity 78

Private Equity Liquidation Preference Option Pool Entrepreneur 78

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

Both Sides of the Table

SEPTEMBER 18, 2014

At an accelerator … 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.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Both Sides of the Table

SEPTEMBER 2, 2009

A friend of mine is a serial entrepreneur and is running a high-profile, early stage company in NorCal. We exchanged ideas when I was an entrepreneur along side him in NorCal in 05-07 and my point-of-view on founder / VC relationships hasn’t shifted even 1% since I went to the dark side. I believe this is wrong.

Founder 329

Founder Liquidation Preference Term Sheet Participating Preferred 329

Feld Thoughts

JUNE 10, 2022

So, as an entrepreneur, I encourage you to deal with reality. Rather, when you have a choice between a financing at a lower valuation and a financing with all kinds of crazy structure to try to maintain a previous valuation, negotiate the best price you can but do a clean financing with no structure. and a bunch of other things.

Down Round 162

Down Round Ratchet Liquidation Preference Participating Preferred 162

crowdSPRING Blog

MARCH 13, 2014

9 Ways Entrepreneurs Can Learn From Their Customers – crowdspring.co/1loBthB. Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. 9 Ways Entrepreneurs Can Learn From Their Customers – crowdspring.co/1loBthB. ReadWrite – crowdspring.co/1ekm5xR.

Social Media 96

Social Media Small Business Design Media 96

Steve Blank

MARCH 16, 2016

As part of the deal you signed with your investors was a term specifying the Liquidation Preference. The liquidation preference determines how the pie is split between you and your investors when there is a liquidity event. Your investors funded you for a liquidity event. Great entrepreneurs shoot for 20X.

Liquidity Event 120

Liquidity Event Founder Liquidation Preference Private Equity 120

Both Sides of the Table

SEPTEMBER 16, 2010

This is the fourth article in a series on what it takes to be a great angel investor (and why this should matter to entrepreneurs). more senior to you) might be piling up liquidation preferences and tilting returns in their favor. Part 1 – Access to Great Deal Flow – is here. So know that going in.

Cap Table 283

Cap Table Angel Investor Liquidation Preference Deal Flow 283

Both Sides of the Table

FEBRUARY 23, 2015

For some aspiring to be tech entrepreneurs, I often suggest a two-step process, as I argued in this post that “ The First Startup Founder You Need to Invest in Is You.” Of course I’m not suggesting people shouldn’t start a company. If you can and if you want to – you should.

Technical Review 150

Technical Review Liquidation Preference Silicon Valley IP 150

crowdSPRING Blog

MARCH 21, 2014

Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. .” | by Howard Tullman - crowdspring.co/1l24JO5. Online commenter critical of business can be sued for defamation, Oregon court says – crowdspring.co/1d6RpW8. ” – crowdspring.co/1lPU1Ks.

Social Media 93

Social Media Small Business Design Media 93

Both Sides of the Table

MAY 13, 2013

And a few teams of super talented, educated and bright entrepreneurs make a few mill. If the money comes from professional investors it usually has a “liquidation preference” meaning that their money comes out before the founders or common stock. (If in their 20′s. What could be more capitalist than that?

Liquidation Preference 357

Liquidation Preference Early Stage Retention Lock-up Period 357

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

abovethecrowd.com

FEBRUARY 24, 2015

Buying into such a notion is dangerous – dangerous for the entrepreneur and dangerous for the investor. As a simple example, many investors and entrepreneurs do not realize that coupon or discount use is a contra-revenue event when it comes to revenue recognition. You must subtract it from your top-line revenue.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

ReadWriteStart

SEPTEMBER 2, 2011

Therefore, going down the fundraising path is something many technology entrepreneurs will need to do and a critical step in the development of their business. Including things like liquidation preferences impact both future rounds and ultimate liquidity to why VCs ask to expand an option pool before investing as part of their term sheet.

Cap Table 125

Cap Table Term Sheet Liquidation Preference Technical Review 125

SoCal CTO

JULY 13, 2010

How-to learn about angel/vc term sheets - Gabriel Weinberg , June 28, 2010 I think every startup entrepreneur (and angel investor) should have a good understanding of financing term sheets. liquidation preference. You’re Not a Real Entrepreneur - Steve Blank , June 10, 2010 Who is an entrepreneur really?

Cofounder 175

Cofounder Technical Cofounder Term Sheet Startup 175

Both Sides of the Table

FEBRUARY 15, 2016

This has led VC & entrepreneur bloggers alike to similar conclusions: start raising capital early and be careful about having too high of a burn rate because that lessens the amount of runway you have until you need more cash. I’m surprised how few entrepreneurs have this open conversation with their investors.

Burn Rate 150

Burn Rate Cap Table Valuation Software Review 150

Both Sides of the Table

JANUARY 21, 2010

I recently read a post over on VentureHacks titled, “ Top Ten Reasons Entrepreneurs Hate Lawyers &# written by Scott Walker (who blogs on legal issues for entrepreneurs ). Because many great entrepreneurs work with lawyers in registering their companies they have their ear to the pavement on the earliest of company formations.

Southern California 318

Southern California Silicon Valley IP Stock Options 318

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

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. I see that all the time. And so forth. Truthfully.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Gust

MAY 24, 2012

Yet I’m skeptical that a widespread shift will occur anytime soon, and for reasons discussed below, as much as I admire and advocate for talented entrepreneurs, I believe it would be a losing proposition for nearly all involved.

IPO 159

IPO Equity Common Stock Stock 159

Feld Thoughts

FEBRUARY 9, 2016

And, rather than rational and helpful thoughts for entrepreneurs, it often brings out the schadenfreude in even the most talented people. We entrepreneurs have been spinning that line for decades in every boom cycle. Then use the down round to clean up your preference overhang. It’s simply not true.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

The Equity Kicker

JUNE 28, 2013

Otherwise the investors won’t make the multiple on their investment that they want and after liquidation preferences are paid the amount left for the entrepreneur may well also be disappointing. back making 8.3x (£2m off the top and then 33% of the remaining £19m) and the entrepreneur makes £12.7m. Nobody is happy.

Liquidation Preference 116

Liquidation Preference Valuation Portfolio Operations 116

Startup Professionals Musings

FEBRUARY 3, 2018

As an angel investor to startups, I’m still surprised to find entrepreneurs who expect investors to give them money, and assume no strings attached. If the entrepreneur wants total control of their own venture, with no one looking over their shoulder, they should work within the limits of their own resources, a process called bootstrapping.

Term Sheet 140

Term Sheet Liquidation Preference Advisory Board Portfolio 140

Altgate

DECEMBER 15, 2010

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← No one wants to tell you your baby is ugly More on Liquidation Preferences → Pre-Money Valuation vs Number of Founders Posted on December 15, 2010 by admin Here’s a chart of the day worth sharing.

Pre-Money Valuation 66

Pre-Money Valuation Valuation Cofounder Founder 66

The Equity Kicker

JANUARY 18, 2013

If you’ve been paying attention you will know that Nicholas Lovell and I are writing a book for entrepreneurs who want to raise venture capital. We are now preparing to shoot a promotional video which opens with five frustrations that entrepreneurs frequently encounter when they embark on the fundraising process, expressed as questions.

Liquidation Preference 159

Liquidation Preference Venture Capital Dilution Video 159

www.founderinstitute.com

MARCH 2, 2010

Participation" means that investors "double dip" by getting both their liquidation preference and their equity allocation. - A 1x liquidation preference , versus a 1x to 3x range in recent deals reported on TheFunded.com. The Plain Preferred term sheet aligns the investor and the entrepreneur incentives.

Term Sheet 40

Term Sheet Liquidation Preference Vesting San Diego 40

Startup Professionals Musings

JULY 3, 2014

As an Angel investor to startups, I’m still surprised to find entrepreneurs who expect investors to give them money, and then disappear into the sunset. Finally, entrepreneurs should never forget that investors really believe that they are there to help (not like “I''m from the IRS and I''m here to help”). Marty Zwilling.

Term Sheet 237

Term Sheet Liquidation Preference Advisory Board Startup 237

Gust

APRIL 16, 2014

Invested Interests business entrepreneur investor contract startup' But something like that would be way, way outside the norm. original post can be found on Quora @ [link] *.

Liquidation Preference 152

Liquidation Preference Revenue Entrepreneur Startup 152

A Smart Bear: Startups and Marketing for Geeks

SEPTEMBER 8, 2010

6 Simple Selling Tips For Software Entrepreneurs [link] (from OnStartups). 6 Simple Selling Tips For Software Entrepreneurs. US Economic Risks (Sept 2010): Impact on Investors & Entrepreneurs [link]. US Economic Risks (Sept 2010): Impact on Investors & Entrepreneurs | Both Sides of the Table.

Liquidation Preference 216

Liquidation Preference Silicon Valley Startup Software 216

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

Feld Thoughts

MAY 7, 2012

Down: Liquidation preference. Entrepreneurs – don’t get confused by the endless mumbo-jumbo. And even though a term sheet might be four to eight pages long and the definitive documents might be 100 pages or more, other than economics, there are really only three things a VC needs in a deal. Up: Pro-rata rights.

Liquidation Preference 143

Liquidation Preference Term Sheet Search Entrepreneur 143

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

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

Growthink Blog

JANUARY 24, 2011

I get the same question a lot from entrepreneurs raising equity capital (venture capital or angel funding). The question is whether they need to issue common or preferred stock. The answer depends on how and what rights are defined in the preferred stock. If, then the company were to be sold for $5,000,000 (i.e. read more.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

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

Both Sides of the Table

MARCH 3, 2013

We talked about how business school historically hasn’t positioned entrepreneurs well for success. I wrote about that before in a post about “ whether MBAs are necessary for entrepreneurs. His class reading lists could be a primer for any entrepreneur, not just MBAs. Neither does Clayton.

Bankruptcy 403

Bankruptcy Offshore Liquidation Preference Balance Sheet 403