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TAG: References

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How Liquidation Preferences Work

TheFunded.com Advice

Posted by fnazeeri on 2008-05-14

Tags: Negotiation Terms Liquidation Preferences

PUBLIC:

Liquidation preferences are a key term in the definition of preferred stock (it's generally acknowledged to be the second most important economic term). Earlier, I wrote about this and other terms in a post on negotiating a term sheet, but here I want to give some specific examples to illustrate why this is such an important term.

You probably already know this, but it's worth repeating that liquidation preference refers to the procedure for paying investors off in a sale or winding up of the company. It typically includes two components: a preference (which is an amount that gets paid before others) and participation (the ability to "double dip"). Many folks have written on preferences in terms of definitions, so instead I'm going to give some simple examples.

For simplicity sake, imagine a VC has $10MM invested in one class of preferred stock in a company, owns 40% and the company is sold for $50MM. Here’s how the three different scenarios in my previous post work (in a specific example):

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Reference Page: Most Common Investor Techniques for Screwing Founders

TheFunded.com Discussion

Posted by Anonymous on 2010-01-10

Tags: Funding Sources References Investor Techniques

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References

TheFunded.com Advice

Posted by Anonymous on 2007-07-03

Tags: Closing Due Diligence References

PUBLIC:

A venture capitalist told me today that he passes on a number of investments because of bad references. He mentioned a specific instance where a former employer thought the manager in question was "a criminal" and another case where he learned that the group of founders were "fighting among themselves" to see who would run the company. In addition, the venture capitalist went on to say that in such cases, venture funds generally "just pass" without giving a good reason, since it is difficult to explain the reference context without giving away confidences.

This brings up a very important point that I have learned from personal experience: venture capitalists do both soft and hard references, and these references will haunt you one way or another. The "hard references" are the ones that you provide. The "soft references," which can include dozens of individuals, are people within your industry, potentially competitors, that they call in an off the "record format." In some cases, the calls you get from associates trying to learn about your business may be an industry research or reference call in disguise. So, what can you do" Members, read on...

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Reference Checks: How Many References Should an Entrepreur Do on a VC?

TheFunded.com Discussion

Posted by Anonymous on 2008-09-03

Tags: Pitching References

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Getting References on Your VC

TheFunded.com Discussion

Posted by Anonymous on 2008-03-29

Tags: Negotiation References Fund Diligence

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References to Patent Attorney with Flexible Payment Terms

TheFunded.com Discussion

Posted by Anonymous on 2010-08-02

Tags: Operations Attorney References

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When a VC De Motivates the Founders / Management

TheFunded.com Discussion

Posted by Anonymous on 2009-10-15

Tags: Negotiation Liquidation Preferences Payout

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Anybody Knows Harel Boren/Portalium Ventures?

TheFunded.com Discussion

Posted by Anonymous on 2009-09-15

Tags: Funding Sources References

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Liquidation Preferences (Preferred, Non Preferred)

TheFunded.com Advice

Posted by click on 2008-06-22

Tags: Negotiation Terms Liquidation Preferences

PUBLIC:

What are folks finding in their discussions for negotiating Participating vs. Non-Participating. ...

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