(I mean this in an entirely un-cynical way. Genuinely curious, and not trying to imply anything negative, $25MM ov value in less than two years is pretty amazing.)
Well, they only raised a $1.1M seed round [1]. I will guess they gave up 25% in that round [2]. YC got about 7%.
At this point, I think AdRoll has become the market leader in the retargeting space. Without raising a huge VC round, there's no way PA could catch them.
Marin is a public company, so the cash + stock offer is probably higher than an all-cash offer would be elsewhere. Plus, since they're public the PA people can sell the stock sooner rather than later if they want.
So, investors get $5.75M on a 1.1M investment. Not a home run, but definitely a double in the gap with 2 RBI.
YC gets $1.6M on a $17K investment (old deal).
Founders + employees have 68% remaining, or about $15.6M.
Not selling means raising another round, giving up more equity, and still not having a guaranteed exit.
[1] http://www.crunchbase.com/organization/perfect-audience
[2] http://www.quora.com/What-is-the-average-amount-of-equity-to...
EDIT: Changed numbers to reflect YC's ownership. Still don't know what I'm talking about.
Typically seed rounds are for convertible notes, to which no equity is assigned.
Standard note terms have conversion during an actual price round, or during transfer of control of the company, or during expiration of the note.
Since they're a YC company, they opted to give 7% for $120k. That leaves 93% for the founders/employees.
Minus that, they raised ~ $980k, on seed terms, which have a valuation cap at between 3.5-6 million. The valuation cap basically says that the price per share is at most calculated by the capped valuation, not the actual valuation. So investors may have actually bought $980k of stock, at a valuation of ~3.5-6million, instead of the full $25.5 that was purchased.
Add to that that convertible notes typically have a discount ~20%, they bought even more shares, leaving them with considerably more ownership, than if they were straight $980k of post-money $25.5m
I don't know the details, and it sounds like the employee's, founders, & investors are all happy, but this does underscore that Convertible Notes can be very costly to founders.
Had their seed round been priced, the founders & employees would have made a lot more money.
As far as I can tell, valuation for priced rounds and cap valuations aren't exactly 1:1
At $1m with $4m cap, no discount, that ends up as 25%.
At 20% discount, that ends up being closer to 33%.
With 7% already given to YC, that leaves 60% for founders and employees. 15mil is definitely a nice payday for them for sure.
Another commenter mentioned this could have been at 8mil cap, 0% discount, which would have left the founders & employees with close to 80%, and extra $5 mil.
This of course is pure speculation and fuzzy math on my part.
There is now push back against a convertible note as an instrument as they tend to favor investors, and that the only upside for founders is that the paperwork tends to be standard, and you can get one for much cheaper than a priced round. The details of PA's funding could easily be another data point for why a Convertible Note isn't founder friendly.
Is your 3.5-5M valuation cap number pre- or post-money?
Given what you said, it looks to still be in the range of 25-35% investor ownership, correct?
Yeah, your numbers (25%) seem correct, but based on standard seed terms. Another commenter pointed out that PA was a hot YC deal, which may have led to much more preferable terms.
> So, the judgment that you have to make is a) is this market really much bigger (more than an order of magnitude) than has been exploited to date? b) Are we going to be number 1? If the answer to either a) or b) is no, then you should consider selling. If the answers to both are yes, then selling would literally mean selling yourself and your employees short.
http://www.amazon.com/Hard-Thing-About-Things-Building-ebook...
They're only 20 months old so I'll make a couple of guesses before someone answers with fact:
a) For a year and a half, most employees would be perfectly happy with a cash-out worth (at the instant) tens of thousands of dollars.
b) Those same employees would be happier if they view the deal as potentially expanding the value of their previous work.
c) Those same employees would be even happier if they were running out of cash and facing a shutdown versus a buyout.
d) Sometimes a marriage creates something stronger than either of the partners ... without the back-story this one is a stretch.
'the company has set aside $2.7 million of equity retention grants to Perfect Audience employees who stay on.'
Given how few people are in the photo, there's probably reason for that to make them smile as well.