3 ms·

This doesn't really seem fair...

• byrneseyeview 16y ago
  Not really. A liquidation preference is worth something, so if you really didn't want to give on, you could give up more equity. But as Fred Wilson once pointed out, it's a great way to handle a situation where the founder thinks the company is worth way more than the VC does. If the founder is right, the VC owns less stock than they otherwise would have; if the VC is right, and the company is bought for a low valuation, the VC gets a higher percentage of the payout. Essentially, a liquidation preference can give you "conditional equity"--the founders own, say, 50% of the company if it's sold for a small amount, and 80% if it's sold for a large amount.
  • adw 16y ago
    I think you'd find a broad consensus among founders and VCs that 1x non-participating is pretty much entirely fair (and standard!) the whole time. Other pref structures often mean that either the VC had the upper hand in negotiations or that there's a big divide in valuation to cross.