What I’ve discovered after 5 years of purchasing typical stock in startups
Deeper trust was our goal when we first thought of buying common stock. It wasn’t about winning the incremental deal or in some way “out-marketing” our competitors. There are many terms and conditions in a preferred term sheet that can misalign investors and founders– for brevity, I’ll highlight simply two listed below. If a financier buys 25% of a business for $2 million in favored stock, their break point on this decision will be $8 million, which occurs to be the post-money valuation of the round. If the company is sold for less than $8 million, the financier would rather take their $2 million back. Yes, if the company is offered for $8 million or more, they offered 25%, but if the business is offered for, state $4 million, the investors will choose to take their $2 million back, which is 50% of the proceeds. The company is not carrying out well and the financiers are made whole at the expenditure of the creators….
Recent Comments