Both Sides of the Table

SEPTEMBER 16, 2010

more senior to you) might be piling up liquidation preferences and tilting returns in their favor. So know that going in. And if you’re not busy being crushed (diluted) you might not notice that the people above you in the cap table (e.g. Only deep pockets can protect this from happening.

Cap Table 283

Cap Table Angel Investor Liquidation Preference Dilution 283

VC Cafe

OCTOBER 31, 2022

Liquidation preferences – in addition to lower valuations, investors are looking for protective provisions. That means that in these down rounds, some investors are asking to 2-5x liquidation preferences.

Founder 174

Founder Technical Review Down Round Liquidation Preference 174

The Equity Kicker

NOVEMBER 9, 2016

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.

Liquidation Preference 122

Liquidation Preference Silicon Valley Participating Preferred Common Stock 122

Both Sides of the Table

JANUARY 21, 2010

You need to know how liquidations preferences work. You cannot just say these clauses are “legalese&# and I’ll let my lawyer figure them out. You need to own your legal agreements. You need to know how “tag along&# rights could potentially screw you. That’s why I love VentureHacks.

Southern California 318

Southern California Silicon Valley IP Stock Options 318

SoCal CTO

JULY 13, 2010

liquidation preference. Yes, even bootstrappers. haven't raised any money for my companies that required a term sheet (just friends & family money in my first company), and yet I still think it is important for a number of reasons. This pitcher has retired 5 of the last 7 batters.

Cofounder 175

Cofounder Technical Cofounder Term Sheet Startup 175

The Equity Kicker

OCTOBER 22, 2012

Betting too early on a billion dollar outcome and building up a big liquidation preference can turn what would otherwise have been a decent success into a failure.

Liquidation Preference 134

Liquidation Preference Distribution Web Conversion 134

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

FEBRUARY 23, 2015

This is because this “liquidation preference” gets returned to investors before you see any money – restricting the executive outcomes in mid-sized exits. In Ian’s post he rightly points out that stepping into a role with $15 million in paid-in capital that has already been spent can be a problem.

Technical Review 150

Technical Review Liquidation Preference Silicon Valley IP 150

ReadWriteStart

SEPTEMBER 2, 2011

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. I strongly recommend reading Brad Feld & Jason Mendelson's Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist.

Cap Table 125

Cap Table Term Sheet Liquidation Preference Technical Review 125

Gust

MAY 24, 2012

By contrast, venture capital and angel investments normally take the form of Preferred Stock with rights and preferences set forth in the company’s Certificate of Incorporation and other governance documents.

IPO 159

IPO Equity Common Stock Stock 159

crowdSPRING Blog

MARCH 13, 2014

Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. Guerilla tips for raising venture capital | VentureBeat – crowdspring.co/P6hM3O. Does A Billion-Dollar Valuation Buy Employee Happiness? ReadWrite – crowdspring.co/1ekm5xR. 1loBthB.

Social Media 96

Social Media Small Business Design Media 96

crowdSPRING Blog

MARCH 21, 2014

Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. Online commenter critical of business can be sued for defamation, Oregon court says – crowdspring.co/1d6RpW8. ” – crowdspring.co/1lPU1Ks. 13 B2B Newsletters That Really Shine – crowdspring.co/1dagMGF.

Social Media 93

Social Media Small Business Design Media 93

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. Or what “flat spots&# on a cap table are.

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

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. Typically, a VC can force a sale, or even block one. You may just be along for the ride. .

Liquidity Event 120

Liquidity Event Founder Liquidation Preference Private Equity 120

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. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Pre-Money Valuation 289

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., founders, option holders, etc.).

Liquidation Preference 73

Liquidation Preference Pre-Money Valuation Participating Preferred Preferred Stock 73

Scott Edward Walker

JULY 20, 2011

Whatever the issue, the advice is simple (albeit difficult to execute): in order to maintain negotiating leverage and credibility, the entrepreneur should not capitulate first.

Private Equity 78

Private Equity Liquidation Preference Option Pool Entrepreneur 78

Both Sides of the Table

MAY 13, 2013

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 That’s why liquidation preferences exist – downside protection. Almost certainly the startup would have raised some capital.

Liquidation Preference 357

Liquidation Preference Early Stage Retention Lock-up Period 357

Both Sides of the Table

MARCH 1, 2016

In bad markets, they can be wiped out by recaps and liquidation preferences unless they save enough reserves to protect their positions. Another big area of concern expressed by LPs is that some seed funds may get “squeezed” in both good scenarios and bad. The data itself bears out some of these fears.

Venture Capital 150

Venture Capital LP Silicon Valley Marketing 150

Startup Professionals Musings

JULY 11, 2021

These normally include what percentage of the company the investor now owns, how and when tranches of money will be delivered, and even how and when you can sell your own shares (liquidation preferences).

Term Sheet 433

Term Sheet Liquidation Preference Advisory Board Startup 433

Startup Company Lawyer

MARCH 14, 2010

The primary rights in these documents, ranked in order of importance in my opinion are: Non-participating preferred liquidation preference. The liquidation preference would not apply in this situation, and any distribution to stockholders would trigger the dividend preference. Dividend preference.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

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

Both Sides of the Table

SEPTEMBER 8, 2012

It has both a “full rachet” and “multiple liquidation preferences.” They share in liquidation preferences pari passu and they vote as a single class. If you do a capped note it’s bad for the entrepreneur. I’m not sure why people don’t see that. ” I wrote about it here.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

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.

Term Sheet 40

Term Sheet Liquidation Preference Vesting San Diego 40

Tim Keane

JANUARY 12, 2010

.   At the financial level , and assuming a harvest of the investment in the company without the need for further financing, two terms stand out as driving economics: the dividend and the liquidation preference. Second a liquidation preference and a participation.   First , dividends.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Both Sides of the Table

FEBRUARY 15, 2016

So if they’re in the mindset that they’re better off getting their $20 million back versus risking more capital then they may prefer just to sell your company for whatever you can get for it. Even if you sold for $20 million they’d be thinking “I have senior liquidation preference so I get my money back.”).

Burn Rate 150

Burn Rate Cap Table Valuation Software Review 150

A Smart Bear: Startups and Marketing for Geeks

SEPTEMBER 8, 2010

Great basic guide on VC / Startup liquidation preferences: [link]. Beware the trappings of liquidation preference | VentureBeat. Thoughts on marketing, technology commercialization and Silicon Valley startups by a high tech executive. Aug 16, 2010 at 6:15am.

Liquidation Preference 216

Liquidation Preference Silicon Valley Startup Software 216

The Startup Lawyer

JANUARY 22, 2013

Depending on the delta between the price cap and the pre-money valuation of the qualified equity financing, the convertible note investors could receive a windfall in terms of liquidation preference. The Potential Problem Let’s say Series A investors invest at a pre-money valuation that [.].

Liquidation Preference 54

Liquidation Preference Pre-Money Valuation Valuation Equity 54

Both Sides of the Table

MAY 30, 2015

When you do a convertible note with a cap that converts into the next round of funding one of the unintended consequences is that if you’re successful and raise at a larger price than your cap the early angels often get “multiple liquidation preferences” on their dollars in.

Liquidation Preference 150

Liquidation Preference Ratchet Angel Investor Entrepreneur 150

Both Sides of the Table

MARCH 3, 2013

We talked about Liquidation Preference, Voting Rights, and all of the other valuable terms crowd-funding investors don’t understand. Neither does Clayton. Unsophisticated money pours into a system as it did in the 90′s through AIM, Neur Markt, Nouveau Marche, etc and burned many investors.

Bankruptcy 403

Bankruptcy Offshore Liquidation Preference Balance Sheet 403

ithacaVC

DECEMBER 14, 2011

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). Ok, enough of the background.

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

Both Sides of the Table

JUNE 14, 2010

Having raised too much money at my first company only to be buried under huge liquidation preferences and a huge board with divergent interests I have a bias for smaller funding rounds and capital efficiency. &# And I always try to put that into the mix when I’m looking at how they think about the opportunity at hand.

Liquidation Preference 343

Liquidation Preference Chicago Operations Partner 343

Both Sides of the Table

NOVEMBER 4, 2009

BTW, this ignores liquidation preferences which actually mean you’ll earn less. In California that averages around 42.5% so in my state after tax you’d make an extra $18,000 / year and that’s in a positive scenario! So let’s go CRAZY! You get 1%, you sell for $150 million and it’s in 3 years (e.g.

Stock Options 418

Stock Options Stock Liquidation Preference Option Pool 418

abovethecrowd.com

FEBRUARY 24, 2015

Most private company financings involve the use of preferred stock with liquidation preferences. These liquidation preferences give the investor a debt-like downside protection. In going public, all preferred shares are converted to common shares, and the pile of liquidation preferences goes away.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

The Equity Kicker

JANUARY 18, 2013

What on earth does this termsheet mean with it’s liquidation preferences, anti-dilution and protective provisions? For example, liquidation preferences are financial structures whereby rather than just getting a share of the company investors get their money back first and then get a share of the company on top.

Liquidation Preference 159

Liquidation Preference Venture Capital Dilution Video 159

Startup Professionals Musings

SEPTEMBER 14, 2010

Liquidation preference. Angels may want the first right to purchase shares held by the other angels in the deal before they are sold to an outside party. This allows a committed angel to consolidate his ownership, rather than see it scattered to the wind. It prevents the entrepreneur from selling early, at a loss to the investor.

Term Sheet 227

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

Startup Professionals Musings

JANUARY 27, 2012

Liquidation preference. Angels may want the first right to purchase shares held by the other angels in the deal before they are sold to an outside party. This allows a committed Angel to consolidate his ownership, rather than see it scattered to the wind. It prevents the entrepreneur from selling early, at a loss to the investor.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 223