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Can you explain? In most cases, preferences won’t come into play, assuming you raise at a standard 1x preference and sell for more than you have raised. In that
by fnbr 1y ago
Can you explain? In most cases, preferences won’t come into play, assuming you raise at a standard 1x preference and sell for more than you have raised. In that case, owning 0.5% should roughly translate into $5M (modulo dilution).
- immibis 1y agoThat would be the naive mathematical interpretation and how the system would work if engineers designed it. Lawyers designed it, though, and they probably know some tricks to make that not happen.
- fnbr 1y agoLike what? All the examples people have said are where either 1) the company has Nx preferences, for N >1, in which case the company has essentially failed to fundraise or 2) the company sells for less than they raised, which again, is a polite form of failure.
- cyanydeez 1y agolets no degrade lawyers more than necessary. Business people hired lawyers to design means and methods to commit _implicit_ fraud and deceptive practices to improve the value of their capital assets. Those lawyers then go on to sell this product to others. I'm sure there's some lawyers out there that are going out there shopping this stuff around, but it's Capitalism and Business thats the active agent, not Lawyers.
- guappa 1y agoYou think engineers never scam?
- Der_Einzige 1y agoNot like lawyers, dentists, car salesmen, etc do!
- wrs 1y agoThere are plenty of valid scenarios where the company sells for a lot, but less than it raised. And 1x preferences are no longer standard post-ZIRP, afaik. People are often not aware that the value of common is nonlinear, so the value of 0.5% in this case is zero. (For the ML fans out there, the common price per share has one or more ReLU activation layers. :) )
- est31 1y agoEven with 1x preferences, the company might have raised $2 billion but sells for $1 billion because the investors don't want to get any further losses. The general rule of thumb is that acquisitions are bad for employees, and IPOs are good, especially if the share price is stable for 6 months.
- jaredsohn 1y agoAlso for acquisitions, often you'll have to work at the acquiring company for some time to get money from your options. Or might get options in the acquiring company instead (which again are worth nothing until some future possible equity event which hopefully translates into cash).
- pc86 1y agoHave 1x preferences become standard? When I worked in startups early investors often has 2x or 3x liquidation preferences, especially at seed.
- pdntspa 1y agoI am under the impression that an oversized cap table is pretty much standard. Am I wrong?