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1x non participating is still the standard in most venture deals for companies doing reasonably well. But every dollar spent by startups essentially builds the
by Finbarr 3y ago
1x non participating is still the standard in most venture deals for companies doing reasonably well. But every dollar spent by startups essentially builds the preference against them. If you raise and don't spend the money, the balance sheet can be used to "offset" the liquidation preference in a sale.
- pclmulqdq 3y agoI mean, every dollar you spend is a dollar off your balance sheet, so a company with $1 million more in cash is theoretically worth $1 million more. That is what "offsets" the liquidation preference.
- paulddraper 3y agoThat is the standard and anyone not in a firesale should expect that m But the reason you raise is because you can turn each dollar into 1+ dollars of enterprise value. If you raise and don't spend... You've accomplished nothing except throwing some money at lawyers.
- Finbarr 3y agoSure- the happy case with VC is that companies raise and spend the money to make more. The reality case is that many companies struggle to do that, and will burn a ton of money in the process, making the liquidation preference much more painful.
- paulddraper 3y agoThat's right. Raising money raises the stakes. It raises the ceiling but also the floor. Be careful of getting buried.
- sb8244 3y agoI think 1x non participating is a fair deal, but watch out for anything other than that. (I wouldn't take a job if there was anything more than that. And it is something I'd ask the founders.)