04 Jan '13, 3am

Redemption and Put #options on a #term sheet? Take a closer look

Last time round, we saw how liquidation preference and participation can combine to affect the entrepreneur’s prospective exit liquidity. I realised I missed out one important point after a reader emailed me to ask about it afterwards. There are indeed liquidation preference clauses where investors end up choosing to convert their preference shares into ordinary shares in order to get a better payout (i.e. 20% of $20M sale = $4M) instead of choosing to go with their liquidation preference & participation rights. This is actually a much fairer way to implement liquidation preference, and would be phrased differently, i.e. “HIGHER of (i) liquidation + participation, OR (ii) conversion of preference into ordinary to receive pro-rata proceeds “, but is most definitely not what the Term Sheet from Hell had asked for. Today, I’d like to show you the term sheet’s Redemption, Put ...

Full article: http://e27.sg/2013/01/04/term-sheet-from-hell-diabolical-...

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