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Liquidity preferences give investors first dig at any cash with a multiple (ie. we get 2 or 3x what we put in before you get your first dollar). Digg had raise
by bl4k 16y ago
Liquidity preferences give investors first dig at any cash with a multiple (ie. we get 2 or 3x what we put in before you get your first dollar).
Digg had raised a little over $10M at the time of the acquisition offer - which would have been a decent return. The $30M round was raised in lieu of the acquisition.
They placated Kevin by partly cashing him out as part of the $30M round.
With that additional investment, the de facto decision by the board and management was that Digg is a billion dollar business, not a hundred-million dollar business.
- hop 16y agoMaybe that is a lesson learned for investors if the founder wants to be bought out early. I bet things would have turned out better if he had all his eggs in the basket still.
- zck 16y agoIt's not uncommon to partially cash out the founder in funding rounds. If the founder gets some cash, ey is less likely to push for an earlier exit. Eir goals are more aligned with the VCs, looking for a larger exit.
- bapadna 16y agoThis doesn't make any sense. If you want your founder to swing for a long ball, you have to free him to do so. A partial payout means his utility curve looks a lot more like yours, which is a good thing.