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Investing Or Marketing? Real Reason Lightspeed Invested In Ning @crazy Valuation
- gojomo 17y agoArrington writes: "They likely have a liquidation preference that lets them get their $15 million out of the company before others can take part of the pie." But, such a liquidation preference wouldn't get them their full $15 million back if the company sells for far less than the assumed $750 million valuation, would it? For example, the total capital raised is said to be $119 million. Lets say the company sells for $150 million. Would Lightspeed really get its full $15 million back, even though that sale price is an 80% decline from their purchase-time valuation?
- blader 17y agoYes, because that's what a liquidation preference is. You get your full investment back in a liquidation event before common stock gets paid off. To illustrate, if LSVP was the only investor in Ning (which it isn't) at a $15MM on $750MM, then if the company gets sold for just $15MM, LSVP would still get $15MM back, and nobody else would get anything.
- gojomo 17y agoI understand liquidation preferences in general -- and if LSVP were the only investor, in a first round, the usual interpretation would make sense to me. But with prior preferreds expecting a return, and (theoretically) no pressing need for the money and such a high valuation -- that seems an excessive amount of downside protection to offer for a smallish amount of late money in an 'up' round. I guess the interesting scenario to me is: what if the liquidation amount is enough to give the early investors a modest return, or the latecomers their money back, but not both? Can we assume that there are tiers, and even that the earlier tiers might get an X% return before the late tier gets their full investment back?