4 ms·
Valuation is (Dollars I pay)/(Fraction of the company I buy). In this case, they are selling 10% of the company for $50 million. It's not exactly the same thi
by sparky 15y ago
Valuation is (Dollars I pay)/(Fraction of the company I buy). In this case, they are selling 10% of the company for $50 million.
It's not exactly the same thing as saying that these investors would be willing to buy all of Instagram for $500 million because both parties' utility functions are seldom linear. It's the closest thing we have, though.
- tlogan 15y agoAnd one more question from not-so-business savvy reader. If Sequoia got this deal with 2x liquidation preference then if Instagram is sold for $100 then Sequoia will still profit $50M. Correct?
- sparky 15y ago'Liquidation preference' is a term that applies to what I think of as 3 or 4 related-but-separate concepts. In the simplest situation, with no vested options or other complications, yes, the investor would get all $100 million, assuming nobody else has a liquidation preference. Vested options and other term sheet items like 'participating preferred' make things more complicated, so you really have to read the entire term sheet to figure out who gets what under what circumstances. Good resources: http://www.burningdoor.com/askthewizard/2007/04/venture_terms_liquidation_pref.html http://www.burningdoor.com/askthewizard/2007/04/venture_term... http://www.feld.com/wp/archives/2005/01/term-sheet-liquidation-preference.html http://www.feld.com/wp/archives/2005/01/term-sheet-liquidati...