[dclara]

Sorry, I don't quite get it. Why are the employees screwed? I know that the VSs got liquidate first usually. But the employees also have their shares value raised in their pocket. If the contracts are not favorable, then even if they go IPO, it's the same for the employees, right? This is different from a new round of VC investment which may dilute the employees holdings.

[malandrew]

    "I know that the VSs got liquidate first usually."

That statement is accurate for secondary markets, but for the Bay Area, I'd say it's more accurate to say "I know that the VSs got liquidate first historically, but that's not necessarily the default today."

I'm saying that companies raising rounds in secondary markets like Atlanta and Raleigh typically get less favorable terms than those raising money in Silicon Valley. They have fewer VCs to choose from and the local VCs have term sheet expectations more similar to the term sheet expectations in the Bay Area from several years ago, which are far less favorable to term sheets today. I doubt that startups in secondary markets could even find investors willing to offer convertible notes or willing to budge on liquidation preferences.

[dclara]

Thank you for your information. Do you mean in Silicon Valley, VCs are rarely get preferred stocks from the startup company? But why are they offering convertible notes which to me is more risk for the startup companies than the VCs?