4 ms·
That is a pretty big assumption, and I would like to highlight it more. The reason why it's a reasonable assumption is that in any material outcome, common sha
by calcsam 10y ago
That is a pretty big assumption, and I would like to highlight it more.
The reason why it's a reasonable assumption is that in any material outcome, common share preferences converge to preferred share preferences.
Yes, once in a while you have an exit at 0.3x to 0.8x latest round where the investors are made whole and common share holders take an excessive haircut or are wiped out entirely. Good Technologies is an example here.
But looking at VC returns, almost all come from ~5x+ exits: "home runs". In fact, most VCs will block acquisitions at less than 2x latest round valuation except in case of corporate distress.
- gjem97 10y agoI agree, there are cases where the values converge. They are, however, a very small percentage all startup outcomes. Most outcomes for venture-backed startups are wind-downs, or small-time acquisitions. In these cases preferred shares are much more valuable. Since what you're trying to do here is assign a current (expected) value to the employee's options, focusing on the "home runs" for the VC is not helpful.