http://saunderslog.com/2005/11/20/participating-or-preferred-scoble-and-segal-on-vcs/ A daily round table on the tech industry with experts and callers from all over the globe. Join us as we pick apart the news and get to the meat of what\'s happening out there. Sun, 12 Oct 2008 17:08:00 +0000 http://wordpress.org/?v=2.6 http://saunderslog.com/2005/11/20/participating-or-preferred-scoble-and-segal-on-vcs/#comment-3150 Peter Rip: Venture Capital is Broken -- Alec Saunders .LOG Wed, 01 Feb 2006 13:40:56 +0000 http://saunderslog.com/?p=2048#comment-3150 [...] Peter Rip’s Venture Capital Sure Seems Broken - It’s About Time is the latest in a whole series of introspective pieces from VC’s on what’s wrong with their industry.  For entrepreneurs, there’s a very valuable lesson in this post.  High valuations can work to your disadvantage.  As I have written previously, planning for an early exit is smart planning.  Peter writes: Lots of cheap capital, available at high valuations seems great, until you do the exit math. Raise $8M at $12M pre-money and your post-money valuation is $20M. Your investors want to sell for $200M. Raise $2M at $4M pre- and your investors get the same rate of return at $60M. But a $60M exit is 10X more likely than $200M. Few VCs will write the $2M check these days, precisely because a $20M return doesn’t move the needle in a $500M fund. That’s why valuations are moving up – the need to invest more money – not the intrinsic value of startups. Higher valuations and high venture rounds may feel good in the short term, but with IPOs as scarce as they are, they can price you out of the very exit you seek. [...] [...] Peter Rip’s Venture Capital Sure Seems Broken - It’s About Time is the latest in a whole series of introspective pieces from VC’s on what’s wrong with their industry.  For entrepreneurs, there’s a very valuable lesson in this post.  High valuations can work to your disadvantage.  As I have written previously, planning for an early exit is smart planning.  Peter writes: Lots of cheap capital, available at high valuations seems great, until you do the exit math. Raise $8M at $12M pre-money and your post-money valuation is $20M. Your investors want to sell for $200M. Raise $2M at $4M pre- and your investors get the same rate of return at $60M. But a $60M exit is 10X more likely than $200M. Few VCs will write the $2M check these days, precisely because a $20M return doesn’t move the needle in a $500M fund. That’s why valuations are moving up – the need to invest more money – not the intrinsic value of startups. Higher valuations and high venture rounds may feel good in the short term, but with IPOs as scarce as they are, they can price you out of the very exit you seek. [...]

]]> http://saunderslog.com/2005/11/20/participating-or-preferred-scoble-and-segal-on-vcs/#comment-2350 will Sat, 10 Dec 2005 06:40:00 +0000 http://saunderslog.com/?p=2048#comment-2350 Liquidation Preference + Participating Preferred is even scarier :) Liquidation Preference + Participating Preferred is even scarier :)

]]> http://saunderslog.com/2005/11/20/participating-or-preferred-scoble-and-segal-on-vcs/#comment-2347 del.icio.us: How Much Did the Employees Get? -- Alec Saunders .LOG Fri, 09 Dec 2005 22:42:30 +0000 http://saunderslog.com/?p=2048#comment-2347 [...] I will preface this by saying I know NOTHING about the actual deal between Yahoo and del.icio.us.  Om Malik’s posting, in which he speculated about the buyout price, set me thinking about the various scenarios for employees in this buyout.  You may recall a couple of weeks ago I wrote about participating vs preferred shares, and how they could impact employee stockholders and founders at exit, especially in the case of a small exit.  If the numbers are as Om speculates, then this seemed like a perfect opportunity to illustrate that impact. [...] [...] I will preface this by saying I know NOTHING about the actual deal between Yahoo and del.icio.us.  Om Malik’s posting, in which he speculated about the buyout price, set me thinking about the various scenarios for employees in this buyout.  You may recall a couple of weeks ago I wrote about participating vs preferred shares, and how they could impact employee stockholders and founders at exit, especially in the case of a small exit.  If the numbers are as Om speculates, then this seemed like a perfect opportunity to illustrate that impact. [...]

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