Restructuring Liquidation Preferences
8.16.2016
New employees rarely, if ever, guide a 's trajectory, even though they often directly help determine it. And employees’ incentives usually skew heavily toward equity in the company’s plan—rather than salary—even though these employees usually have no say in how the company’s fundraising activities will impact the eventual value and payout of the held by the employees.
You’ve just received your first venture capital . Congratulations—you’ve earned it. Now what does it all mean? “Pre-money valuation,” “ preference,” “pro-rata rights”? A seasoned venture capitalist (in this post, a VC or investor) has seen and invoked these concepts hundreds, if not thousands, of times. You? Maybe not so much.
Assume you have been working on your for a year now, have raised one round of funding, and an acquisition of $20 million comes your way. As a founder and the majority shareholder, you will see most of this $20 million, right? Right? In truth, maybe you will and maybe you won’t.
