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The plural of anecdote is not data. How many companies with exits with liquidation preferences didn't make the VCs money? How many without preferences didn't m

The plural of anecdote is not data. How many companies with exits with liquidation preferences didn't make the VCs money? How many without preferences didn't make the VCs money? How many involved the founders getting screwed because of these preferences? I don't object to the preference in general, but any multiplier greater than 1.0 is a red flag for me. You can find VCs that will do 1x preferences. I don't know what the options are for deals without preferences.

cperciva 16y ago
The plural of anecdote is not data. If you're a VC investing $50M in a company, you don't wait for data before trying to protect that investment. I don't object to the preference in general, but any multiplier greater than 1.0 is a red flag for me. Personally I think a preference of (1.1)^[# years since investment] would be more fair (otherwise founders can make money by simply investing in treasury bonds). But I don't plan on taking funding anyway, so it's a moot point.
- deleted 16y ago
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fredwilson 16y ago
i agree 1x is right and fair
- hubb 16y ago
  i don't know anything about investing, but why would VCs invest in a company if they only expect to just get their money back? can a VC investing a series C or D get more than just what they invested?
  - adw 16y ago
    If the valuation of the company is higher than the VCs invested at (post-money), then assuming something screwy isn't going on with the pref structures in earlier rounds - ie, there aren't any or they're 1x non-participating, plus the round you're investing in isn't a down round - then they will. Basically post-money valuation, exit price and pref structures are the only important numbers here. 1x non-participating means all investors get their money back, so as long as every round was an up round and the exit is above the last round post-money, everyone will do better by converting to common and taking their share rather than their pref right.

cperciva 16y ago

The plural of anecdote is not data. If you're a VC investing $50M in a company, you don't wait for data before trying to protect that investment. I don't object to the preference in general, but any multiplier greater than 1.0 is a red flag for me. Personally I think a preference of (1.1)^[# years since investment] would be more fair (otherwise founders can make money by simply investing in treasury bonds). But I don't plan on taking funding anyway, so it's a moot point.

deleted 16y ago
[deleted]

fredwilson 16y ago

i agree 1x is right and fair

hubb 16y ago
i don't know anything about investing, but why would VCs invest in a company if they only expect to just get their money back? can a VC investing a series C or D get more than just what they invested?
- adw 16y ago
  If the valuation of the company is higher than the VCs invested at (post-money), then assuming something screwy isn't going on with the pref structures in earlier rounds - ie, there aren't any or they're 1x non-participating, plus the round you're investing in isn't a down round - then they will. Basically post-money valuation, exit price and pref structures are the only important numbers here. 1x non-participating means all investors get their money back, so as long as every round was an up round and the exit is above the last round post-money, everyone will do better by converting to common and taking their share rather than their pref right.