Lightspeed Venture Partners

OCTOBER 7, 2012

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. This time I’ll break down week four of this season. BACK 9 DIPS.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

ithacaVC

APRIL 25, 2014

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. The option strike price in cell J1 is arbitrary.

Cap Table 79

Cap Table Preferred Stock Pre-Money Valuation Participating Preferred 79

Berkonomics

JANUARY 6, 2022

Email readers, continue here…] Take a situation where the VC investors finally see the chance of a return after ten years, with participating preferred and fifty percent of the ownership after several rounds. Here’s an example that will make your heart skip a beat.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

The Startup Lawyer

JANUARY 10, 2012

The amount of the liquidation preference is usually expressed as a multiple, with the most common liquidation preference being “1X non-participating.”

Liquidation Preference 73

Liquidation Preference Pre-Money Valuation Participating Preferred Preferred Stock 73

YoungUpstarts

JUNE 4, 2015

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. But this trend is bringing its own host of challenges.

Singapore 100

Singapore Mobile Participating Preferred Security 100

Early Growth Financial Services

FEBRUARY 3, 2015

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?

Preferred Stock 28

Preferred Stock Stock Finance Participating Preferred 28

The Startup Toolkit

NOVEMBER 4, 2011

Next, we check that we’re safe from any particularly onerous terms like participation preferred. What’s the dilution? Can I make those numbers bigger and smaller, respectively? Looks good. Regarding structure, the first deal is a rolling round with committed lead investors.

Term Sheet 31

Term Sheet Dilution Participating Preferred B2C 31

ReadWriteStart

AUGUST 9, 2021

55-65-year-olds were the most drawn to historied and trusted branding, with almost twice as many participants preferring this option compared to innovative brand names. Men were found to have little to no preference in siding with trusted brand names compared to those that are innovative.

eCommerce 176

eCommerce B2C Naming Agile 176

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. What rights does the Series Seed have? Ted Wang explains most of the highlights of the documents. The investor receives their money back and the remainder goes to the common. .

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Scott Edward Walker

JUNE 9, 2019

I liken it to participating preferred — which founders also do not typically understand until it is too late. In short, super pro rata rights are another example of investors trying to take advantage of inexperienced founders. The post WHAT ARE SUPER PRO RATA RIGHTS? appeared first on WALKER CORPORATE LAW GROUP, PLLC.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

ithacaVC

DECEMBER 14, 2011

Sometimes, after getting back the LP, the preferred holder then converts to common and gets its prorata share of proceeds left after all LP has been paid (this is called participating preferred). One final background point, a “liquidation event” is a sale of the company and typically NOT an IPO.

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

Lightspeed Venture Partners

OCTOBER 1, 2012

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.

Pre-Money Valuation 158

Pre-Money Valuation Valuation Participating Preferred Preferred Stock 158

The Equity Kicker

JANUARY 25, 2016

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.

Venture Capital 60

Venture Capital Angel Investor Startup Participating Preferred 60

The Startup Toolkit

NOVEMBER 4, 2011

Next, we check that we’re safe from any particularly onerous terms like participation preferred. What’s the dilution? Can I make those numbers bigger and smaller, respectively? Looks good. Regarding structure, the first deal is a rolling round with committed lead investors.

Term Sheet 20

Term Sheet Dilution Participating Preferred B2C 20

The Startup Lawyer

JULY 13, 2011

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. Ultimately, the deal document set was nothing like the well-known Series Seed set.

Preferred Stock 68

Preferred Stock Liquidation Preference Participating Preferred Stock 68

The Equity Kicker

JULY 4, 2012

Nicholas and I want it to be a book we can be proud of and that means doing more than putting the blog posts back to back with an introduction and some nice cover art.

Venture Capital 107

Venture Capital Due Diligence Participating Preferred Dilution 107

ithacaVC

NOVEMBER 18, 2011

get both the carve out amount and the equity value; I guess double dipping is only for VCs that have participating preferred stock ). This is to make sure that the executive does not double dip (i.e., I recently was discussing a management carve out plan with another board member.

Management 49

Management Preferred Stock Participating Preferred Equity 49

Berkonomics

OCTOBER 1, 2015

Take a situation where the VC investors finally see the chance of a return after ten years, with participating preferred and fifty percent of the ownership after several rounds.

Dividend 48

Dividend Preferred Stock IRR Participating Preferred 48

Scott Edward Walker

NOVEMBER 26, 2017

For example, one investor may propose Series Seed Preferred Stock and another investor may agree to a SAFE ; or, in a larger financing, one investor may be pushing hard for participating preferred and a 25% option pool and another investor may agree to the same valuation, but straight preferred and a smaller pool.

Term Sheet 63

Term Sheet San Francisco Founder Investment Bankers 63

ConversionXL

APRIL 23, 2013

The researchers informed half of the participants that natural chickens were healthy but less tasty, and genetically engineered chickens were tasty, but less healthy. Overwhelmingly, both halves of participants preferred the nice plump chicken, but their reasoning was different. The other half were told the opposite.

Web 134

Web Design Denmark Green 134

Both Sides of the Table

APRIL 14, 2010

Once you cross the threshold where their percentage ownership would be worth more than the value of their preference they “convert&# their preferred stock into common stock and take their proceeds pari passu (along side and on the same terms as you) with the common stock holder.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

thinkspace.com

SEPTEMBER 7, 2012

Is the preference structure for preferred shareholders at the startup you work at Standard Preferred or Participating Preferred? Should your startup be acquired, do you have legal control over what role, title and responsibilities you’ll have post-acquisition?

Equity 62

Equity Employee Founder CTO Hire 62

Professor VC

JULY 25, 2013

Yes, there are a number of cases in the middle where having a senior or participating preference does make a difference in liquidation proceeds, but I argue that it does very little to overall returns in a diversified portfolio. Unfortunately, not everyone follows the KISS principle.

Term Sheet 46

Term Sheet Silicon Valley Syndication Syndicate 46

Professor VC

JUNE 6, 2016

I can just picture Mr. Rogers saying "Children, can you say participating preferred stock with an uncapped 3x liquidation preference and a full ratchet?" However, in my 25 years in the Silicon Valley startup ecosystem, I've experienced the VC corollary to the golden rule much more often: "He has the gold makes the rules!"

Syndication 28

Syndication Syndicate Ratchet Cap Table 28

Scott Edward Walker

APRIL 9, 2012

They are also typically granted certain additional economic rights (like Series A investors), such as pro-rata rights and a liquidation preference. In fact, in the Fenwick Survey , 9% of the preferred stock seed financings included a participating preferred liquidation preference (which is not founder friendly).

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Altgate

DECEMBER 18, 2008

Let’s recap how expensive a 3x liquidation preference really is. Say you raise $8MM at $17MM pre-money ($25MM post) with a 3x participating preferred. Even companies that have countercyclical businesses are finding cash more expensive.

Liquidation Preference 31

Liquidation Preference Venture Capital Post-Money Valuation Participating Preferred 31

ConversionXL

MAY 31, 2016

Furthermore, the same study found that an incredible 100% of participants preferred sites with sticky navigation bars, despite often not knowing why. Since mobile users are looking for immediate results and quick access to key data, 22% faster navigation is a big deal.

Mobile 48

Mobile Conversion Design Participating Preferred 48

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

www.payne.org

SEPTEMBER 22, 2011

Ive seen companies with $75m of preference, and very frustrated common stockholders that realize the company needs to get acquired for $100m or more for them to start making any money. (To To keep things simple, Ive omitted many details for preferred stock, such as "participating preferred" mechanisms.

Equity 56

Equity Employee Vesting Preferred Stock 56

ConversionXL

MARCH 19, 2012

The researchers informed half of the participants that natural chickens were healthy but less tasty, and genetically engineered chickens were tasty, but less healthy. Overwhelmingly, both halves of participants preferred the nice plump chicken, but their reasoning was different. The other half were told the opposite.

Social Media 129

Social Media Technical Review Arlington Clickthrough 129

ConversionXL

APRIL 17, 2019

Researchers informed half the participants that natural chickens were healthy (but less tasty) and genetically engineered chickens were tasty (but less healthy). Overwhelmingly, participants preferred the plump chicken, but their reasoning was different: The first group claimed that it was because they valued health above taste.

Customer 132

Customer Social Media Arlington Media 132

ConversionXL

JULY 12, 2017

In addition, the same study found that 100% of participants preferred sites with sticky navigation bars, despite usually not knowing why (that’s all of the participants – crazy). A study by Smashing Magazine found that sticky navigation bars allowed users to find what they were looking for 22% faster.

eCommerce 100

eCommerce Mobile Conversion Design 100

ConversionXL

JULY 12, 2017

In addition, the same study found that 100% of participants preferred sites with sticky navigation bars, despite usually not knowing why (that’s all of the participants – crazy). A study by Smashing Magazine found that sticky navigation bars allowed users to find what they were looking for 22% faster.

eCommerce 95

eCommerce Mobile Conversion Design 95