

Bank Strategies and Tech Valuations - chollida1
http://www.bloombergview.com/articles/2015-06-08/bank-strategies-and-tech-valuations

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chollida1
I posted this because there have been a fair number of articles lately about
rachets, liquidation preferences and unicorn pricing.

There is a paper that is linked to that is a great read:
[https://www.fenwick.com/Publications/Pages/The-Terms-
Behind-...](https://www.fenwick.com/Publications/Pages/The-Terms-Behind-the-
Unicorn-Valuations.aspx)

> The protections, known among investors as structuring or ratcheting, can
> inflate a unicorn’s indicated valuation 10 percent to 25 percent, according
> to Rick Kline, a lawyer at Goodwin Procter whose firm does legal work on
> start-up and initial offering financings.

The issue at hand is that late stage, or Mezzanine, funding rounds tend to
push up valuations whit the down side of ratchets for the private equity
firms.

The private equity firms don't mind the valuation as they have downside
protection. The founders have their large ownership percentage, its the
employee's who are last in line to reap the benefits who stand to loose the
most in these types of deals.

