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But if the company sold for less than $5m, the founders would get nothing? Probably ignorance here, but if the company sold for less, say $4m are the founders
by Sohum 16y ago
But if the company sold for less than $5m, the founders would get nothing?
Probably ignorance here, but if the company sold for less, say $4m are the founders now in debt for the remainder of the 5x agreement?
- Sohum 16y agoSo the founders who own majority of the company, can be outnumbered on the board and have little influence over "strategic tactical" decisions etc?
- growt 16y agoyes at $5m they will get nothing, but at $4m they won't be in debt. 5x is really a rip-off, but 2x (double-dip) is quiet common. Liquidation preference at its core is an instrument to protect the investor. Imagine the following scenario: An Investor gives you $1m for 50% of your company. A year later it sells for $1m (because it wasn't a hit). The investor just lost $500k you made +$500k.