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by zandrew 762 days ago
One of the things I'm surprised isn't covered more is the liquidation preference that VCs take... an investment is basically an extremely expensive loan.

If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.

If your company succeeds, the VC owns a percentage of your success.
2 comments
earnesti 762 days ago
The reason for that is that there is very high likelihood that the "loan" will never be paid back. It is just a market. As far as I understand from the statistics, VC's are not making great money, on average. Average startup gets the funding, uses it for salaries and everything else, and never pays the investor any substantial amount back.
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csomar 762 days ago
The interest rate on the loan, is your ROI. This is reasonable because it's a very risky loan.

> If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.

I thought all loans are structured that way? I am not sure why this should not be the case here.

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