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"...at the number they came up with..." Maybe I've misread you here. Is this not a number the investors came up with? As for the 9% interest rate, that starts

• tptacek 8y ago
  Yes. That is the idea. As downside protection, Collaborative Fund's investment was to begin behaving as if it were debt (issuing interest, that is) after 5 years. I assume the expectation was that if Buffer maintained hypergrowth and reached the inevitable Series B, part of the series B negotiation would eliminate that downside protection clause. But they didn't; they charted a course that didn't involve an imminent second round, and so that protection clause was problematic. Again: it would be really weird if companies could simply demand their equity back. The whole point of investing in a startup is that their equity will end up wildly more valuable --- not 40% more, but 10x more --- than the money put in.
  • ElFitz 8y ago
    40% is still far more than most of their startups ever did or will get them. Or a conflicted / disaligned relationship with the founders would have.
  • gamblor956 8y ago
    Once the interest (aka "downside protection") kicks in, the shares effectively converted to debt, meaning the company was simply repaying a liability.
    • tptacek 8y ago
      Did I miss the part where they said that? The post suggests their counsel said it was a unique clause. At any rate: they bought out their investors years before interest became due. It was a negotiated sale.