Start Walker liquidating oh

Walker liquidating oh

So you work for a startup that has raised gobs of VC money and is about to be sold for many millions of dollars. The liquidation preference overhang is kind of like musical chairs when a company gets sold, where the chairs are the money, and the VC always gets a seat. Lots of digital ink has been spilled on VC funding, so we’ll limit ourselves to the aspects germane to the liquidation overhang.

The best thing an employee can do is to go in eyes wide open–try to get the most information before taking the job.

In addition to the “smart” questions to ask during compensation negotiations, which we previously covered in these pages, a prospective employee can also ask his suitor how much VC capital has been invested in the company (Crunch Base or Angel List may also have this information, but you will get more reliable information directly from the company).

In this example, the VCs would rather take their liquidation preference than convert to common because if they converted, they would get only $32 million ($40 million * .8).

The brutally honest answer to this question is not much.

When a liquidity event occurs, the VC investors have the option of taking the liquidation preference or converting their preferred shares to common shares and participating in the distribution as common stock holders.

Naturally, they will do whichever results in more money.

But remember that the VCs have the option to take their liquidation preference or convert their preferred shares into common shares and participate in the proceeds from the liquidation as common stock holders.