So, finally! Our preferred shareholder has a distribution. Less than expected by the naïve optimists hearing the headline price, but still it’s nice to see money flowing back from an exit. Now what? ’Tis impossible to be sure of any thing but Death and Taxes. Indeed....
Paul Clark
Exits: The Last Complications
The pie is so close you can almost taste it. But wait a second! Escrow accounts In most transactions, the buyer will insist that some of the proceeds are set aside into an escrow account. Why? Despite all the diligence an acquirer might do on a company, they cannot...
Exits: Dividing the Pie
As we’re close to the bottom of the waterfall, we are now including a third metaphor as we figure out how to “divide the pie”. Management Bonuses An acquiring company is typically buying a company and, at least for a while, its management team. The buyer, therefore,...
Exits: The First Evaporations
There are a few immediate claims on the water heading into the waterfall; some of these are fairly obvious, others are more complicated or controversial. Transaction fees Investment bankers, attorneys, accountants, advisors, and other service providers that have...
Exits: Waterfalls
Nothing happens in investing without flowery metaphors. When we discuss “exits” we are talking about getting our money back out of an investment. This can happen in several different ways. Typically, we are talking about a company being acquired, either by another one...
Exits: waterfalls, holdbacks, escrows, earnouts, and carry – some of the complexities of “an exit”
“Make Money. Have Fun. Do Good.” is the VentureSouth motto.This first part, Make Money, is (we believe) the key point of angel investing – and something our members have been able to do. You do it through “exits” – getting your investment back plus, hopefully, a gain...
Capped participating preferreds: wrap up
Hopefully between the prose and the spreadsheet, we have illuminated the cost of the compromise for founders and investors finding this middle ground of a “capping participation.”If not, at least you hopefully come away knowing that VentureSouth would never willingly...
Capped participating preferreds: the real impact 2: the grey zone
Following from the last post, there was a range of fairly attractive outcomes where the capped participation had an impact: let’s review the results from the grey zone.Grey zone: In the (C) grey zone, we have a moderately good result, but one where the capped...
Capped participation preferreds: the real impact part 1
What does the capped participation preference mean in practice?Time for the promised spreadsheet: this sheet lays out the returns for preferred shareholders in (1) a non-participating preference, (2) a (fully) participating preference, and (3) a capped participation...
Capped participating preferreds: Are they unusual?
Are capped participating preferreds unusual? Well, it is option #3 in the term sheet – people generally go with option 1 or 2! – and is slightly more complicated to explain to founders and syndicate partners – hence these posts. This extra difficulty makes it less...