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I was always skeptical but the thing that made me concretely understand why these valuations aren't real is when I learned about liquidation preferences. At le
by no_wave 10y ago
I was always skeptical but the thing that made me concretely understand why these valuations aren't real is when I learned about liquidation preferences.
At least a 2x liquidation preference is standard for most VC investments (Y Combinator is an exception to this, I think). In simplified form, this means that regardless of what happens, the investors will get 2x of what they invested before anyone else in the company sees a cent. This means that even if giphy fails, the investors will always get a 2x return on their investment unless the company falls so far that it's no longer worth $24 million when it's sold off somehow.
EDIT: After being informed in responses to this, it appears that 1x preferences are now the standard. I apologize for any misinformation.
- ep103 10y agowow, okay. If that's standard, that really puts things in a different light
- marrone12 10y agoIt is standard. It's also why being in a startup is rarely the windfall it seems, even if there is an exit. By the time all the VCs get their 2x-5x cashout, there's barely money for the actual employees.
- flylib 10y ago1x is standard, 2x isn't, I doubt Giphy did more then 1x, The majority of snapchat's financing rounds are actually common stock with only the early investors getting preferred stock and 1x liquidation preference
- no_wave 10y agoYou're correct, and I apologize for the misinformation. I'll add an addendum to my post reflecting this.