crowdSPRING Blog

MARCH 13, 2014

Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. New Jersey Votes to Block Tesla’s Direct Sales – crowdspring.co/1gnUjAX. Guerilla tips for raising venture capital | VentureBeat – crowdspring.co/P6hM3O. ReadWrite – crowdspring.co/1ekm5xR. 1fEF2ki.

Social Media 96

Social Media Small Business Design Media 96

Steve Blank

MARCH 16, 2016

After awhile, you ought to be able to go to the whiteboard and diagram the acquisition decision process much like a sales process. Do you wait 7 years until you’ve built enough revenue for a billion-dollar sale? Typically, a VC can force a sale, or even block one. The same is true about liquidity. Timing is everything.

Liquidity Event 120

Liquidity Event Founder Liquidation Preference Private Equity 120

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. Co-sale rights.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

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

Both Sides of the Table

SEPTEMBER 8, 2012

It has both a “full rachet” and “multiple liquidation preferences.” ” If you remember the three rules of sales : it’s. 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. why buy anything?

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

Tim Keane

JANUARY 12, 2010

It also assumes the entire value of the investment is captured for investors at a sale of the company in the time specified in the term-sheet. This results in a range of sale prices; in this example from $118.6MM to $21MM.   In most cases, the preferred dividend is paid before any dividend is paid to the common.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Both Sides of the Table

MARCH 3, 2013

The numerator (return) encourages more sales, which is fine. We talked about Liquidation Preference, Voting Rights, and all of the other valuable terms crowd-funding investors don’t understand. He spoke about ROCE (return on capital employed). Neither does Clayton.

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).

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

Both Sides of the Table

SEPTEMBER 6, 2010

If Ventro was worth $8 billion on $2 million of sales surely a paltry $1 billion would suffice. That said, don’t complicate the topic – If you’re the founder of a company you likely know a lot about things like Liquidation Preferences and how they affect value allocations when the company is sold.

Stock Options 294

Stock Options Stock Valuation Liquidation Preference 294

Altgate

OCTOBER 8, 2009

Raising Capital: 5 Reasons Convertible Debt Sucks HOT The Collapse of the VC Ecosystem & What It Will Look Like Post Recovery 10 Tips On Negotiating With VCs Dating…er…Fundraising Etiquette The Science & Art of Term Sheet Negotiation HOT How Liquidation Preferences Work HOT How Much Money Should I Raise?

Term Sheet 39

Term Sheet Technical Review Michigan Liquidation Preference 39

www.readwriteweb.com

DECEMBER 29, 2011

This includes things like how liquidation preferences impact future rounds and ultimate liquidity, to why VCs ask to expand an option pool before investing as part of their term sheet. You have a business to run and more importantly don't forget one of the first principals of any sales process: "time kills deals".

Cap Table 47

Cap Table Term Sheet Liquidation Preference Technical Review 47

Both Sides of the Table

JULY 19, 2011

For one, due to the way liquidation preference work sometimes they have “flat spots&# which means that they might earn the exact same amount from a $40 million sale as they would from a $50 million sale. We’re both principals in a sale. But you want to be the person negotiating your deal.

Term Sheet 319

Term Sheet PR Liquidation Preference Stock Options 319

Gust

NOVEMBER 15, 2012

In my own portfolio I have companies that are generally perceived to be extremely successful with high profile customers and lots of sales…but they just happen to have a liquidation preference ladder of $25 million!

Seed Stage 131

Seed Stage Hockey Stick Cap Table Liquidation Preference 131

Growthink Blog

JANUARY 24, 2011

One very popular "preferred right" or "preference" that adds very significant value to outside investors and is common in venture capital investments is a liquidation preference. The liquidation preference means what is sounds - namely that preferred stock holders with this right get all of their money back (i.e.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

Up and Running

AUGUST 17, 2015

C Corp versus LLC, non-competes, liquidation preferences, preferred versus common stock, and so on). While there is a wealth of information available online, it’s all a lot more tangible when you have case law and real life anecdotes attached to these considerations.

Entrepreneur 60

Entrepreneur Cofounder Angel Investor eCommerce 60

genylabs.typepad.com

SEPTEMBER 24, 2011

where your stock sits in the liquidity preference stack. what rights and preferences the founders and the other investors have. They had a great managment team, A list VCs, great technology, excellent sales traction and market leadership in a very exciting space. what kind of stock you are getting. what your rights are.

Equity 40

Equity Technical Review San Jose Stock 40

Altgate

DECEMBER 18, 2008

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← Holiday Cards Year End Management Changes → The 3X Liquidation Preference Is Back! Let’s recap how expensive a 3x liquidation preference really is. Bookmark the permalink.

Liquidation Preference 31

Liquidation Preference Venture Capital Post-Money Valuation Participating Preferred 31

The Startup Lawyer

JUNE 9, 2010

In addition, here’s an example of how a startup CEO’s huge salary didn’t help his startup: CEO’s $500,000 Salary Burns Startup Into Fire Sale. The startup community focuses most of the term sheet discussion on liquidation preferences and anti-dilution , but startup CEO salary is nonetheless an important issue.

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Salary Term Sheet Liquidation Preference Liquidity Event 99

Startup Professionals Musings

SEPTEMBER 26, 2015

Investor liquidation priority. Investors want a contract preference to get their total investment back first in any company sale, to prevent founders who are struggling from deciding to sell at a loss. If the company is sold at a profit, liquidation preference can also help them be first in line to claim their profits.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Feld Thoughts

FEBRUARY 9, 2016

I’ve seen every imaginable type of liquidation preference structure, pay-to-play dynamic, preferred return, ratchet, share/option bonus, option repricing, and carveout. I suffered through the next financing after implementing a complex structure, or a sale of the company, or a liquidation.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Growthink Blog

MAY 23, 2011

With this capital, the company propels itself to $50 million+ in revenues, and to either a sale to a strategic acquirer or to an initial public offering. This venture capital financing - usually between $3 and $10 million - is the first of a number of rounds of outside investment over a period of three to five years.

Angel Investor 112

Angel Investor Venture Capital Sweat Equity Cram Down 112

Berkonomics

AUGUST 29, 2013

Sometimes the end game or sale of the company is not a happy event. Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment. There are a number of questions a distressed sale brings to mind.

Delaware 66

Delaware Liquidation Preference Liquidity Event Preferred Stock 66

K9 Ventures

MARCH 23, 2011

It is in essence equivalent to being a Liquidation Preference that is typically seen in a preferred equity financing. In fact, under the current law , if you invest in a qualified small business stock in 2011, and hold that stock for 5 years, then the capital gains on the sale of that stock becomes 0%.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

Scott Edward Walker

APRIL 9, 2012

When investors receive shares of preferred stock, they are typically granted certain significant control rights, including a Board seat and veto rights with respect to certain corporate actions (such as the sale of the company) pursuant to so-called “ protective provisions.”

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Berkonomics

JULY 23, 2020

Sometimes the end game or sale of the company is not a happy event. Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment. There are some questions a distressed sale brings to mind. How about outside investors?

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62

ithacaVC

FEBRUARY 23, 2011

As the investors’ aggregate liquidation preference (ALP) increases typically the need for a MCOP also increases. The ALP is the total amount of $ that preferred stock holders are owed on a sale of the company under their liquidation preferences. A few key points to consider: 1.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

Startup Company Lawyer

JANUARY 9, 2011

Tweaking convertible debt so that common stock (instead of preferred stock) is issued for the conversion discount in order to limit liquidation preference overhang. Convertible debt with a price cap preserves the investor’s “equity&# ownership, but gives the investor extra liquidation preference.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

Berkonomics

MAY 22, 2014

The sale of equity in private companies is regulated by the Securities Act of 1933, which requires that the company either register with the SEC or meet one of several exemptions (Regulation D). Bill Payne has been actively involved in angel investing since 1980, funding over 50 companies and mentoring over 100 more.

Early Stage 79

Early Stage Accredited Investor SEC Private Placement 79

Up and Running

MAY 21, 2015

They generally also get additional rights that common shareholders don’t get, such as anti-dilution protection, and liquidation preference (discussed further below). Liquidation preference. Whether that’s true or not depends in no small part on how the liquidation preference clause was negotiated with outside investors.

Covenant 60

Covenant Liquidation Preference Ratchet Dilution 60

Startup Company Lawyer

JANUARY 31, 2011

Optional maturity conversion : into Series AA Preferred Stock based on a $5M valuation. Please note that these are generally the terms of the Series AA Preferred Stock financing documents that Y Combinator previously published.).

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

ithacaVC

DECEMBER 13, 2013

So, yes, you can fix, but I can safely say that the founder who ended up with options (to avoid tax issues) would have rather had actual stock instead (better tax treatment upon sale typically). QUESTION #3: What if Founder X and Founder Y issued themselves some sort of preferred stock instead of common stock?

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

abovethecrowd.com

APRIL 20, 2016

If you really want to liberate your own common shares and those of your employees, then you want to convert the preferred to common and remove both the control and the liquidation preference over your shares. For the most part, early investors in Unicorns are in the same position as founders and employees.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

ithacaVC

NOVEMBER 1, 2011

Typically, a company’s stock option plan will provide that if options are NOT assumed by the acquiring company that they accelerate and then terminate if not exercised immediately prior to the sale event. And we VCs know that a sale is not possible without the management team making an incredible effort.

Vesting 60

Vesting Pre-Money Valuation Liquidation Preference Stock Options 60

ithacaVC

MAY 1, 2013

The article states “When venture capitalists invest, they typically demand preferred shares that accrue a yearly dividend of about 8 percent. In a sale, the original amount and the interest all come due. The dividend goes unpaid until the company is sold. And I think that makes 100% sense.

Dividend 45

Dividend Liquidation Preference Common Stock Venture Capital 45

Scott Edward Walker

AUGUST 31, 2011

Accordingly, in the context of negotiating your term sheet, a good startup lawyer will sit down with you and walk you through all of the key legal provisions in the term sheet to make sure you fully understand their ramifications.

Silicon Valley 45

Silicon Valley Term Sheet Liquidation Preference Redemption 45

Startup Company Lawyer

FEBRUARY 21, 2010

Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless. If you can’t figure this out yourself, you should probably build a liquidation preference spreadsheet to model how liquidation preferences work depending on M&A transaction value.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

Altgate

DECEMBER 18, 2008

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← The 3X Liquidation Preference Is Back! This is reminiscent of Yahoo bringing Jerry Yang back to be CEO (in that case they did it knowing that a potential sale was on the horizon). Bookmark the permalink.

Liquidation Preference 28

Liquidation Preference Management Venture Capital Founder 28