Comments on: Liquidation Preferences

By: myuggbootssale

myuggbootssale — Tue, 08 Dec 2009 02:22:10 +0000

I recommend you go to online store, there have a lot of ugg boots sale,If you want to buy a pair of cheap ugg boots uk.More and more people chooseugg boots uk. So you know that ugg series of the most famous is the ugg boots.air jordan shoes,air jordans,cheap ugg boots

By: How To Weld

How To Weld — Thu, 29 Oct 2009 14:20:26 +0000

I've been reading some of your older posts, and find them very informative... thank you! MIG Welding Techniques | Respectable Reviews | Training An Older Dog

By: RohitK

RohitK — Tue, 12 May 2009 11:38:46 +0000

That means there is pros and cons of venture Capital ..the way u see it At the time of Acquisition brand name also depends and it matters a lot to determine the original value..so it is difficult to measure the brand value of a public company also.. Private company has its own problem of valuation with its Brand name...

By: Brad Feld

Brad Feld — Thu, 24 Aug 2006 14:46:05 +0000

This is perfectly legal.

By: Pat

Pat — Thu, 24 Aug 2006 07:44:10 +0000

I have a question on stock options within a company. Is it legal for certain employees (management) to be given stock options with no vesting period (in other words stock is fully vested upon issuance) while all other employees are granted stock options with a vesting period of 2 years? Is this not discriminatory?

By: jeff

jeff — Wed, 28 Sep 2005 05:07:56 +0000

I have a question about how venture capital firms calculate their rates of return. I’ve heard of “Internal Rate of Return” which is a return based on cash inflow and outflow, and I have also heard of “Realization Multiples” which is a multiple of what has been distributed to what has been invested in the fund. I have done some research online, and many articles suggest an excess of 25% internal rate of return for venture investments…how does this reconcile with a realization multiple (i have heard it is about 3 x’s…but logically/arithmetically how does it reconcile)

Thanks,

Jeff

By: Flow Of Time

Flow Of Time — Thu, 26 Aug 2004 09:53:41 +0000

Term sheet negotiations

If you think that a ‘double dip’ refers to dining and you are raising funds you better read Feld Thoughts…

By: Akira Kurosawa

Akira Kurosawa — Fri, 13 Aug 2004 09:49:06 +0000

One addition: Most entrepreneurs and employees are confused why there needs to be two classes of stock… and are often surprised that there is some benefit beyond VC greed.

By: Tim Palmer

Tim Palmer — Sat, 17 Jul 2004 19:34:47 +0000

Brad,
Great post. I think you could add some more information though – namely why a VC demands and liquidation preference (at least 1X). In your hypothetical example the founders (and employees) could decide to liquidate the company immediately after receiving the $5 mil from AVC – giving founders $2.33 M, and AVC $1.67 M. Also some “in the trenches” examples of different liquidation preferences would be great (any stories out there about bully VCs that received 5X preferences).

By: Royal

Royal — Fri, 16 Jul 2004 03:09:26 +0000

Brad–

Nicely stated.

One addition: Most entrepreneurs and employees are confused why there needs to be two classes of stock… and are often surprised that there is some benefit beyond VC greed.

In order to price options as cheaply as possible (thus maximizing their use as a motivational tool), the stock associated with these options has to be truly different than the stock a VC buys… else, the government won’t let you price common shares (and options) differently than preferred.

As it turns out, this is a big deal to employees, who would rather get options, say, at 10 cents vs. $1. (The $1/share being what the VC pays for a preferred share.)

So, something like a liquation preference can be used as a differentiator, which hopefully helps entrepreneurs and employees feel better about this class distinction.

As you tear into the components of the term sheet, though, it might get a bit uglier. Only two speeds of term sheets: Onerous and very onerous!

By: chervokas

chervokas — Thu, 15 Jul 2004 17:05:01 +0000

Brad-

Great idea to write this series of posts. Cogent, concise, well written information about the ins and outs of the process of venture investing is actually hard to find.

I remember when I went to work for Primedia Ventures, having previously been a non-MBA journalist and entrepreneur, I read all the conventional basic books on VC. They were horrendous almost without exception. Poorly written, poorly edited. I remember reading a passage in Joseph Barlett’s book over and over. What he described in the passage didn’t make sense unless new stock had been issued, but nowhere did he write that new stock had been issued. I asked my wife to read it–who is a structured finance lawyer and no slouch at structuring deals–and she was as mystified as I was. It was just a poorly written, poorly edited book that provided no real illumination.

You and Fred should think about working up a little guide to venture as a book, I’m sure you could sell it and it would be a real contribution to the literature on the subject.