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The valuation of $XX,000,000 is typically based on investor purchase price, which almost always includes a liquidity preference likely not factored into OP's sh
by bentlegen 9y ago
The valuation of $XX,000,000 is typically based on investor purchase price, which almost always includes a liquidity preference likely not factored into OP's shares. If an investor buys 10% of the business with a 2x liquidation preference for $2,000,000, it's not accurate to say "the business is now worth $20,000,000". But TechCrunch and other news outlets will omit this all the time. (And let's not leave out that his stake will be diluted after the round.)
Furthermore, "a bird in the hand is worth two in the bush". Don't neglect the value of having money here and now you can invest in other assets: a downpayment on a home, stock market investment, etc. Many people in SF would have done better to have just purchased a modest home in 2010-2012 or bought TSLA than to have played the startup lottery over and over.
- trapperkeeper79 9y agoWhat does "2x liquidation preference for $2,000,000" mean?
- late2part 9y agoLiquidation preference means they are preferred when there is a liquidation. So if the company is sold the person with the liquidation preference gets their money out first at the liquidation preference ratio. In this case, $2Mx2 means if the company is sold for $10M even though they only own 10% they get the first $4M. http://www.investopedia.com/terms/l/liquidation-preference.asp http://www.investopedia.com/terms/l/liquidation-preference.a...
- jdmichal 9y agoIt means that if the company liquidates -- IPO, sale, or dissolution being the more common forms -- the investor is first in line for $4,000,000. Then, any remaining money gets split among the other share holders. If there's less than $4m in the pool, then the investor gets it all and everyone else gets nothing.