Investing Or Marketing? Real Reason Lightspeed Invested In Ning @crazy Valuation

techcrunch.com

5 points·vaksel··3 comments

Arrington writes: "They likely have a liquidation preference that lets them get their $15 million out of the company before others can take part of the pie."

But, such a liquidation preference wouldn't get them their full $15 million back if the company sells for far less than the assumed $750 million valuation, would it?

For example, the total capital raised is said to be $119 million. Lets say the company sells for $150 million. Would Lightspeed really get its full $15 million back, even though that sale price is an 80% decline from their purchase-time valuation?

Yes, because that's what a liquidation preference is.

You get your full investment back in a liquidation event before common stock gets paid off.

To illustrate, if LSVP was the only investor in Ning (which it isn't) at a $15MM on $750MM, then if the company gets sold for just $15MM, LSVP would still get $15MM back, and nobody else would get anything.

I understand liquidation preferences in general -- and if LSVP were the only investor, in a first round, the usual interpretation would make sense to me.

But with prior preferreds expecting a return, and (theoretically) no pressing need for the money and such a high valuation -- that seems an excessive amount of downside protection to offer for a smallish amount of late money in an 'up' round.

I guess the interesting scenario to me is: what if the liquidation amount is enough to give the early investors a modest return, or the latecomers their money back, but not both? Can we assume that there are tiers, and even that the earlier tiers might get an X% return before the late tier gets their full investment back?

Reply on news.ycombinator.com