61–70 of 187 posts
Just because you founded a company, it does not mean you get a cut of the final sale. Starting a company is hard. You can struggle to make it profitable, never get there, and end up deeply in debt years later. Fanduel became relevant mainly because of the marketing it was able to purchase without that it would have fallen by the wayside. You need lots of money for that. The founders must have needed cash at a critica…
I suspect the founders took some cash off the table in prior rounds.
Earlier quoted context omitted.
As an investor who invests at the Seed to Series A stage, I can tell you that a non-participating 1x liquidation preference is standard. I would refuse to invest in any deals that didn't include it, but won't be asking for anything more. I think it's a pretty fair term. It prevents investors getting screwed by a sale for less than the round valuation, which could look quite attractive to a founder who could get their…
In the USA or UK ? The UK tends to have stronger protection for employee shares -not that there haven't been some dodgy deals BAXI getting taken over by carpetbaggers and screwing the owners is a well know case in the UK. And I have been on the receiving end of losing $1,000,000 at Poptel if only ICANT weren't such a bunch of ass%^&&S and the CoOp had been a bit more tech savvy - still water under the bridge. Poptel…
Can someone familiar with the current funding climate say if standard deals at all levels involve liquidation preference nowadays? As in, if Im considering a seed-round, will there be any sophisticated investors doing no preference? Have talked to some investors in the scene (UK) but cannot seem to get a clear picture on this. Is declining to accept a liquidation preference at seed level a red flag for any serious in…
Having recently raised a seed in the UK; there is simply no reason to accept any sort of prefs for a seed round. There is plenty of SEIS/EIS money about - and part of those tax relief schemes is the investors need to take ords or they lose the tax-relief. Your mileage may vary etc.
My heart breaks for them.
This is why VC's are called vultures. They claim they want you to have skin in the game, yet the founders get screwed. I know folks are thinking but the VCs are not making much, so what? Their entire game is to make it all up from another startup 100x which is why they take massive equity for $$$ invested.
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From the perspective of a founder, I would be quite nervous about accepting an investment and drawing any kind of salary if the deal didn't include liquidation preferences. They are so standard (at least in North American tech) that if they were missing, I'd worry about their competence. Structuring a deal without LPs would mean that founders could push for extremely early exits, cash out with modest (though life cha…
I posted this in another reply, but it’s not the liquidation preferences themselves so much as the fact that it was the investors pushing for liquidation at a price point that precluded the founders from getting any money
With what I know, it's hard to attribute anything the VC firms did to malice.
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If you like lower risk and lower gain, sure. The most important thing is being educated. Every time this topic comes up on HN it appears that many people are unaware that liquidation preferences are a thing and many sales that are down-rounds have no money falling on common.
If it really was lower gain then sure. But as it is, on average, startups give you more chance of ending up with nothing but an entry in a CV.
Can someone familiar with the current funding climate say if standard deals at all levels involve liquidation preference nowadays? As in, if Im considering a seed-round, will there be any sophisticated investors doing no preference? Have talked to some investors in the scene (UK) but cannot seem to get a clear picture on this. Is declining to accept a liquidation preference at seed level a red flag for any serious in…
Having recently raised a seed in the UK; there is simply no reason to accept any sort of prefs for a seed round. There is plenty of SEIS/EIS money about - and part of those tax relief schemes is the investors need to take ords or they lose the tax-relief. Your mileage may vary etc.
Stories like this seem to validate that people should choose real liquid equity of public companies over the paper equity of startups when considering employment.
If you like lower risk and lower gain, sure. The most important thing is being educated. Every time this topic comes up on HN it appears that many people are unaware that liquidation preferences are a thing and many sales that are down-rounds have no money falling on common.
Given how much the big tech companies are paying though, especially when it comes to RSUs, I'm not sure this calculus makes sense anymore, especially for early employees. Founders may do exceptionally well on many cases, but for most early employees at startups there really isn't that much potential upside in most cases, compared to the guaranteed earnings you can get at a top tech company.