[founder6564]

I am currently on the other side of the table. I have a startup that is doing well in traffic, but running out of money quickly. I want to sell the company, and I have several buyers, but my investors who have common stock are threatening to kill any deal I bring unless they get above and beyond their pro-rata shares.

At least the investors in this article have the option of not signing whatever paperwork the new investors push on them. Much harder situation for me as I risk walking away with nothing unless I give more than our investors are entitled to.

[emmett]

Hey, I think you might be slightly confused on some terminology.

Pro-rata is about investing MORE money into the company when you raise a round, to avoid being diluted. It's not something you can get "above".

I think you're talking about liquidity preferences here, which are a separate issue. You could get returns "above and beyond" liquidity preferences, so I'm guessing that's what your investors are actually talking about.

[3pt14159]

Can you share the rough deal size and investor payback? Most investors have 1x liquidation preference, and I can totally see them getting at least that, even if they didn't write it into the contract; but if they are asking for more than 3 or 4x on a short term deal, then they're just being greedy.

[founder6564]

I would like to keep it confidential, since my investors likely read HN. Deal size was above 5 million but less than 10 million. They are pure common, no liquidation preference or anything like that. For all intents and purposes they hold the same shares and rights as myself.

They invested more than they would receive in a sale under pro-rata terms, so they would have a loss, but still a partial return on investment. You say I should honor terms not written into a contract and give them a 1x preference? Seems silly to me. If they wanted those terms, they should have negotiated it. I do not feel entitled to give them more than what they negotiated for. These guys are a professional fund and this is the name of the game.

Unfortunately, it looks like unless I cave they will just let the company die. They ultimately know that the sale means much more to me than it does to them. All the pressure is on me, to end up with 'fuck you' money. They likely do not care about the money as much as not having to write down a loss or something. If I was to give them what they want, I would walk away with close to nothing after having spent significant time working for almost no salary.

[3pt14159]

Well here is the truth of the matter: If your investors get their money back you'll probably get investors again. If your investors do not get their money back, it will be much harder to raise next time.

[phreanix]

Just wondering, why sell and not raise additional funding? Or is that something you already explored?

[founder6564]

Not a option for a bunch of reasons.