Kupor: Non-participating preferred structures create investor exit indifference zones
Scott Kupor · The Economics of Term Sheets · Jun 23, 2019 · at 20:00
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Scott Kupor, Managing Partner at Andreessen Horowitz, explains venture capital term sheet economics using a hypothetical $4 million investment for 33% equity in a company named Indigo.
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“Between prices of four and 12, as you can probably see from a mathematical perspective, they're always better off just staying with their liquidation preference because their percentage ownership in the company doesn't yield them any more dollars. So the investor has this weird kind of flat line, which is they're kind of indifferent, right? So it doesn't matter to the investor if I sell it for four million dollars, Or if I sell it for 11.9 million dollars, I as an investor am always just going to take my four million dollars.”
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