one of the better companies i am an angel investor with just raised a significant amount of money. that’s a huge deal in this tough climate.
the company got three term sheets which is also really impressive. all about the same valuation and all from great venture firms. but two of the term sheets asked for a 3x liquidation preference.
Yes, I said a three-times participation rights. Whoa!
The company was lucky enough to have another term sheet from a reasonable VC and not have to take on the onerous terms. But it makes me wonder, how many of the companies that have recently raised money (even the well known ones) have crazy terms like these? Will the entrepreneurs of these companies ever be able to make money?
One VC friend says he heard of a deal (that was accepted!) with a 7X liquidation preference. Why not just set your stock certificates on fire?
reminds me of the gallows humor at CES this year: “We [Intel Capital] intend to continue forward and be very supportive of your down rounds this year.” (http://www.businessweek.com/business_at_work/business_entrepreneur/archives/2009/01/ces_quote_of_th.html)