Liquidation Preference – Yesterday again tomorrow? | Hacker News Reader

Liquidation Preference – Yesterday again tomorrow?

hedgeaccordingly.posthaven.com

34 pointsprostoalex7 comments

What is worse is, employees -- who make up the common-pool -- don't get to see the terms of these late stage rounds. So, their share of valuation is sinking and they are not made aware of it.

Also, doesn't outstanding stock an useless/misleading metric without disclosing liquidation preferences of the investors?

If the employees have stock, they'll be entitled to see the amended and restated certificate of incorporation, which would show liquidation preferences, etc.

If they only have options, they're not entitled to anything, though they could pay to download a copy of the certificate of incorporation from Delaware (it's a public document).

That said - your point is well taken. Most employees likely have no idea what terms the Company is raising money on at any given time.

Thanks for that information.

NSO and ISO are usually termed Stock Options.

Which category are they? "stock" or "options"?

When you exercise your option, it's no longer an option, you're now holding a share.

Great analysis (and interesting idea regarding large funds recently raised by accelerators, etc.).

However, if the implication is that this situation is even somewhat common--your analysis doesn't match the data.

If you look at Fenwick's VC Survey on Unicorn Financings[1], a paltry 5% involve participating preferred while even less (3%) involve multiple liquidation preferences.

Has OP identified a possible strategy to "fudge" one's way to a Unicorn valuation? You bet.

Are many companies using this strategy? Absolutely not.

[1] https://www.fenwick.com/publications/Pages/The-Terms-Behind-...

Very interesting and well done analysis. The liqprefs change the returns for the investors at the top of the distribution stack dramatically, especially in less than stellar outcomes. But the desire to race to unicorn status on the part of founders may be setting up the company for such an outcome. In which case both employees and investors lower in the stack are likely to get screwed most of the time.

And the killer insight is at the end - this means that accelerators are then incentivized to raise huge funds so they can play in the big boy leagues at the top of the distribution stack.

Insightful post.

> to invest $100mn in the it

Grammatical error?

Reply on news.ycombinator.com