VDR Ch. 4, Part 1: Liquidation Preference
August 1, 2017 | By Vela Wood
Office Hours is a podcast hosted by Vela Wood venture attorneys Kevin Vela and Aaron Terwey covering general issues related to small businesses and startups. Venture Deals Review is a series of Office Hours episodes discussing the book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson.
In this episode, Kevin and Aaron review “Chapter 4: Economic Terms of the Term Sheet” and discuss why the difference between pre-money valuation and post-money valuation matters when negotiation with a VC, why price per share is critical in later financing docs, what is included in a fully-diluted basis, why accepting a lower valuation can be the best option, the difference between participating preferred stock and non-participating preferred stock, and why play-to-pay scenarios are no longer common.
You can find definitions and examples of terms found in the book and this podcast in our Venture Glossary.
- Accredited Investor
- Articles of Incorporation (AOI)
- Authorized Shares
- Balance Sheet
- Certificate of Formation (COF)
- Certificate of Incorporation (COI)
- Change in Control
- Conversion Price Adjustment
- Conversion Rights
- Convertible Note
- Follow-On Financing
- Fully-Diluted Basis
- Investment Thesis
- Issued Shares
- Issue Price
- Liquidation Preference
- Option Pool
- Outstanding Shares
- Par Value
- Participating Preferred Stock
- Participation Rights
- Post-Money Valuation
- Pre-Money Valuation
- Price Cap
- Price Per Share
- Reserved Shares
- Stock Options
- Term Sheet
- Do I really owe Delaware $75,000? Explaining Delaware Franchise Tax Calculations
- Don’t have enough authorized shares? There’s a fix for that.
- Liquidation Preferences and Convertible Notes
- Negotiating Like a Pawn Star
- Silicon Valley Review Season 2, Episode 2-4: The Importance of a Good Board
- Term Sheets 101: Convertible Debt vs. Equity
- The Company Agreement Explained: Why Do I Need a Company Agreement If I Have a Certificate of Formation?
You’ll want to bookmark Venture Glossary as a quick reference for navigating the venture world. We love talking about startups, so follow us on Twitter. And feel free to email us at firstname.lastname@example.org with any comments or suggestions!