Comments on: Understanding Liquidation Preferences

By: MARY

MARY — Mon, 10 Jan 2011 09:38:38 +0000

If a receiver bypasses the priority of payments and from the proceeds of sale pays shareholders and neglects unsecured creditors, can that be construes as preference? can it be set aside by the court?

By: Chris McDemus

Chris McDemus — Wed, 10 Mar 2010 21:52:21 +0000

Jacin – thanks for the comment. If you told a founder that if they build a company that would sell for $100M and they they’d only get the value of $1/share when the VCs would get $15/share, I think all of your founders would quit. That’s not enough incentive to work the kinds of hours to build such a company. When, after some years of operating, it appears that such an exit would result in a 15:1 (VCs/founders) split, many VCs consider putting management bonus pools in place to make sure they’d get more than $1/share upon exit – otherwise they risk dis-incentivizing the founder. Thanks again for the comment.

By: Jacin

Jacin — Wed, 10 Mar 2010 12:07:00 +0000

Hi Chris
Is it ok the following calculation?
Acquired 100 million; Series B preferred Capped: 9.34 and Common 6.66? I think it should be 15 and 1 respectively.