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From my limited knowledge, one of two ways: 1) The founders also get squeezed out 2) The founders have some sort of preferred shares.
by gridspy 17y ago
From my limited knowledge, one of two ways:
1) The founders also get squeezed out
2) The founders have some sort of preferred shares.
- netcan 17y agoWhat exactly does #2 mean? Whenever new shares are issued, the founders get some more shares free?
- anamax 17y agoThere are lots of ways to do it. For example, the company could be set up so 10% of the company is owned by folks who have type A stock and 90% by owners of type B. The company can issue additional type B stock without issuing more of type A stock. That dilutes the value of each type B share without affecting the value of type A shares.
- netcan 17y agoThe reason I am confused is this: they still end up with something, sometimes, at least. Otherwise noone would do it. The question is then, why doesn't this become a reduced to absurdity example where past investors are always left with nothing. If they can be wiped out, why aren't they always wiped out?
- gridspy 17y agoThe VCs who did that would get a bad name. Also, it is in everyone's best interest that the angel investor network is healthy.