
Liquidation Preference – Yesterday again tomorrow? - prostoalex
http://hedgeaccordingly.posthaven.com/936078
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iambvk
What is worse is, employees -- who make up the common-pool -- don't get to see
the terms of these late stage rounds. So, their share of valuation is sinking
and they are not made aware of it.

Also, doesn't outstanding stock an useless/misleading metric without
disclosing liquidation preferences of the investors?

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hobbyjogger
If the employees have stock, they'll be entitled to see the amended and
restated certificate of incorporation, which would show liquidation
preferences, etc.

If they only have options, they're not entitled to anything, though they could
pay to download a copy of the certificate of incorporation from Delaware (it's
a public document).

That said - your point is well taken. Most employees likely have no idea what
terms the Company is raising money on at any given time.

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iambvk
Thanks for that information.

NSO and ISO are usually termed Stock Options.

Which category are they? "stock" or "options"?

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transitorykris
When you exercise your option, it's no longer an option, you're now holding a
share.

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hobbyjogger
Great analysis (and interesting idea regarding large funds recently raised by
accelerators, etc.).

However, if the implication is that this situation is even somewhat common--
your analysis doesn't match the data.

If you look at Fenwick's VC Survey on Unicorn Financings[1], a paltry 5%
involve participating preferred while even less (3%) involve multiple
liquidation preferences.

Has OP identified a possible strategy to "fudge" one's way to a Unicorn
valuation? You bet.

Are many companies using this strategy? Absolutely not.

[1] [https://www.fenwick.com/publications/Pages/The-Terms-
Behind-...](https://www.fenwick.com/publications/Pages/The-Terms-Behind-the-
Unicorn-Valuations.aspx)

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not_that_noob
Very interesting and well done analysis. The liqprefs change the returns for
the investors at the top of the distribution stack dramatically, especially in
less than stellar outcomes. But the desire to race to unicorn status on the
part of founders may be setting up the company for such an outcome. In which
case both employees and investors lower in the stack are likely to get screwed
most of the time.

And the killer insight is at the end - this means that accelerators are then
incentivized to raise huge funds so they can play in the big boy leagues at
the top of the distribution stack.

Insightful post.

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debacle
> to invest $100mn in the it

Grammatical error?

