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This comment misunderstands how liq pref works. Liq pref is about the amount of money invested ($175M), not about the valuation. At a $975M exit and a par-for-t
by y_gy 3y ago
This comment misunderstands how liq pref works. Liq pref is about the amount of money invested ($175M), not about the valuation. At a $975M exit and a par-for-the-course liq pref of 1.0, it is very likely that all shareholders will have made money on the exit.
- claytonjy 3y agoShareholders who got in before that last round, that is. Employees who joined in the last few years will likely have underwater options unless Loom internally repriced already-granted options.
- sushid 3y agoWhy are they underwater? The "value" of their options would have been the preferred share - common share price. So it would have been a fat haircut but likely still netted them some number > common share price, no?
- drexlspivey 3y agoThe options are worth common share price - strike price. If the strike is higher they are worth zero
- FreakLegion 3y agoAt exit the preferred shares become common, and the common shares increase in value accordingly. I've seen even series E companies that kept their common share price to under 20% of the preferred share price. If you started on day X with a common share price of 20% of the last preferred share price, and the company was acquired on day X + 1 at a discount, say 60% of the last preferred share price after factoring in liquidation preferences, then your profit from the options is still 2x the strike price. Loom is an odd case because the timing of their last round was simply perfect. It was announced in May 2021, which means the terms would've been set in Jan or Feb, when Tiger and other firms were on a rampage and competition to get into rounds was at its height. That last $130m has to have been on very favorable terms, not just the valuation but e.g. no crazy liquidation preference. So, unless Loom's founders made some inexplicably bad deals, I'd expect even recent hires to still make a little money. Nobody should be getting zeroed out.
- y_gy 3y agoAs I mentioned in another comment -- no, their options will not be underwater, because the strike on their options is set by the 409A value, which will have been far less than 1.5B. It wouldn't be unusual to see a company that's got its preferred stock valued at 1.5B and its 409A at 400M.
- woeirua 3y agoTIL. Thanks for pointing that out!
- wferrell 3y agoAre you counting employees that joined after the 1.5B valuation? I am sure they made money but not what was expected (exiting above 1.5B). How are you determining par for the course liq preference of 1.0? Where does that data come from? I ask genuinely as the small sample of companies I know of personally have liq preferences greater than 1.
- depereo 3y agoif they had options, i.e the ability to purchase stock at, say, $10, but the company was sold with that stock being worth $9 only, then exercising those options would lose them money.
- y_gy 3y agoLiq pref > 1 was extremely uncommon in the last 5 years. Employees who joined after the 1.5B valuation will have made money because the strike on their options is set by the 409A, which will have been far, far less than 1.5B. Preferred stock price is not the same as 409A common price.