Why didn't I get any money from my startup?

https://www.reddit.com/r/startups/comments/a8f6xz/why_didnt_i_get_any_money_from_my_startup_a_guide/

by jlangenauer • 8 years ago

12 3 8 years ago

Tldr because the big institutions and rich people demand liquidation preference.

If your startup isn't sold for hefty multiples (e.g 100M sale price, 10M in vc money), then employees and founders are the first to be negatively impacted (see also: boned)

bsaul• 8 years ago

Question : is it still possible to raise without following the practices of the day ? Aka : no liquidation preferences, or shorter than average vesting period, etc.

Or is the trend to give more and more safety nets to VC at the expense of the people actually working in the company irreversible ?

troydavis• 8 years ago

give more and more safety nets to VC at the expense of the people actually working in the company irreversible ?

There are logical arguments for both 1x non-participating and 1x participating. Using 1x non-participating as an example because it’s simpler: if a startup raises $5 million and then sells for $4 million, they traded $1 for $0.80. No enterprise value was created. Employees aren’t getting shorted because there’s no gain to allocate in the first place.

Above 1x is not at all standard. You used the word “give,” but these terms aren’t gifts, they’re negotiation outcomes. If a startup obtains multiple term sheets and/or or is satisfied with a lower valuation, they’ll negotiate better liquidation preferences. A startup which accepted a 2x liquidation preference either pushed the valuation as high as possible, obtained no other offers, or both.

Why didn't I get any money from my startup?

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