emagdnim2100

By "zero out," do you mean they were previously valuable and then dropped below their strike price after accounting for the > 1x preference? That sucks and I'm sorry it happened to you. It's still pretty unusual though.

Curious to hear - were any of the following factors in play: (i) the company was struggling to stay afloat, (ii) the company was located outside SF/NYC, (iii) the company had less-experienced founders?

This is a badly inaccurate description of how liquidation preferences work, both mechanically and also with respect to what's "market."

First, it's exceptionally unusual to see anything more than a 1x liquidation preference (i.e. investors receive their initial investment back before anyone else gets paid) among well-funded companies. It's somewhat common to see a 6-10% interest rate added on top, but a 3x liquidation preference is the VC equivalent of a payday loan.

The other component is whether the liquidation preference is "participating" or "non-participating." The easiest way to think about that is that a participating preference receives its initial investment back out of the sale proceeds, then shares in the remainder of the profits alongside the common stockholders. A non-participating preference is like a "greater-of" - basically downside protection in the event that the company is sold for a much lower than expected amount.

Suppose Jet's received $800m in funding like you said, and suppose the investors have gotten pretty aggressive terms - call it 6 rounds of funding that each took 20% post-money, all of which have a 1x liquidation preference and are getting 10% interest. Let's say the interest takes the preference to $1 billion because we're more or less making up numbers at this point, but we're in the right ballpark.

So the common stockholders (founders and employees) own 26% of the company at this point (.8^6), and a billion dollars comes off the top of the $3 billion sale amount. The common stockholders would therefore receive about $520 million.

The Walmart stock is publicly traded, so it's a lot like getting cash (though it may be subject to a short lock-up in a deal like this). Companies like to do combination cash/stock deals for a variety of reasons.

This is almost exactly how some law schools run their on-campus interviewing process (except the bit about actual decision-makers being required to attend). From what I've observed, it works really well. Pre-screening for at least some level of mutual interest can save everyone a lot of time.