08 Mar '13, 7am

Term Sheet from Hell: (Molten) Liquidation Preference

I think Liquidation Preferences beyond 1X makes sense at later financing stages when investors are trying to ensure some baseline return; see Fred Wilson’s post for more. I think 2X Liquidation Preference plus Participation is okay if the investor doesn’t have much faith in it becoming a decent exit down the road, but still wants to give it a shot because they don’t have other ways of deploying their capital for better return. I think every entrepreneur should seriously consider capital that’s offered to them, because every drop counts when you’re in a desert. I only hope the investor isn’t expecting to reap returns without really adding value, and the entrepreneur isn’t signing on the term sheet until he or she fully understands what they’re getting themselves and their team into.

Full article: http://sgentrepreneurs.com/2013/03/08/term-sheet-from-hel...

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