[tptacek]

This comment isn't responsive. What is the other asset class in which investors sink large amounts of money into 2-4 individual people with no established business and nothing to lose? That's where the principal/agent problem comes from. PE funds do not have the same problem.

[antr]

"2-4 individual people with no established business and nothing to lose" is quite a broad-brush to define how startups and entrepreneurs are. I don't think that $200k qualifies as "sink large amounts of money". My point regarding liquidation preference is that this clause is prevalent across all funding stages, even when the company has an established management team, considerable cash flow, etc. "PE funds do not have the same problem." I have disagree with that statement, private equity funds do have big principal-agent problems (family owned businesses, first time CEOs, strategy, capital structure, etc), and every time we come across these they are solved with veto rights over capex, acquisitions and capital structure, but definitely not pricing other shareholders/management out of the cap table.

[tptacek]

This is silly. A $200k deal doesn't come with preferences and if it did it wouldn't matter anyways, because $200k is a small fraction of even a marginal exit.

[antr]

If you take a number which is for argument sake and call it "silly", that is fine by me. To argue that liquidity preference clauses are the ONLY method to avoid the principal-agent problem (and that's not the only reason it's there in the first place), both you and I know that there are other, more entrepreneur friendly, methods to go around this issue.