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Note to entrepreneurs: this is a really, really bad term if you see it early on in a companies life. It allows nasty investors to put a gun to the head of the
by Brushfire 10y ago
Note to entrepreneurs: this is a really, really bad term if you see it early on in a companies life.
It allows nasty investors to put a gun to the head of the company to either bankrupt the company or (in reality) force a crazy negotiation for more equity when an exit isnt found within enough time.
Avoid like the plague.
So, good for Dropbox.
- bing_dai 10y agoI have a relatively less negative feeling towards the Redemption Clause. I somewhat empathise with VCs who put the clause in the term sheet, as VCs themselves have huge and constant time pressure to make money for their investors (LPs), which likely can only happens when their portfolio companies has a big liquidation event (IPO or acquisition). Yes I agree that the Redemption Clause does not align with entrepreneurs' interest, but I understand the reason behind it.
- frakkingcylons 10y agoI think you meant to say empathize as opposed to emphasize.
- bing_dai 10y agoOops. You are right. Thanks!
- mbesto 10y ago> Yes I agree that the Redemption Clause does not align with entrepreneurs' interest, but I understand the reason behind it. I don't think the parent was questioning the reasoning behind, he/she was just saying it's a bad deal, and entrepreneurs should actively avoid it. It's good advice and a good strategy for a founder. Let's turn your statement around a bit. You can probably see how there really isn't an equally fair way to play this game: I somewhat emphasize with founders who don't understand such clauses in the term sheet, as founders themselves make huge sacrifices and are constantly under pressure to perform for their investors (VCs), which likely can only happen when their company has a big liquidation event (IPO or acquisition).