

Investing Or Marketing? Real Reason Lightspeed Invested In Ning @crazy Valuation - vaksel
http://www.techcrunch.com/2009/07/26/investment-or-marketing-the-real-reason-lightspeed-invested-in-ning-at-a-crazy-valuation/

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gojomo
Arrington writes: "They likely have a liquidation preference that lets them
get their $15 million out of the company before others can take part of the
pie."

But, such a liquidation preference wouldn't get them their full $15 million
back if the company sells for far less than the assumed $750 million
valuation, would it?

For example, the total capital raised is said to be $119 million. Lets say the
company sells for $150 million. Would Lightspeed really get its full $15
million back, even though that sale price is an 80% decline from their
purchase-time valuation?

~~~
blader
Yes, because that's what a liquidation preference is.

You get your full investment back in a liquidation event before common stock
gets paid off.

To illustrate, if LSVP was the only investor in Ning (which it isn't) at a
$15MM on $750MM, then if the company gets sold for just $15MM, LSVP would
still get $15MM back, and nobody else would get anything.

~~~
gojomo
I understand liquidation preferences in general -- and if LSVP were the only
investor, in a first round, the usual interpretation would make sense to me.

But with prior preferreds expecting a return, and (theoretically) no pressing
need for the money and such a high valuation -- that seems an excessive amount
of downside protection to offer for a smallish amount of late money in an 'up'
round.

I guess the interesting scenario to me is: what if the liquidation amount is
enough to give the early investors a modest return, or the latecomers their
money back, but not both? Can we assume that there are tiers, and even that
the earlier tiers might get an X% return before the late tier gets their full
investment back?

