Say you have a Series A where the lead investor says, ok, want a 1x liquidation preference. And then you have a Series B, and the lead investor says, ok, now WE want a 1x liquidation preference before the Series A Investor!
Could you do that? Or can you not override terms after they're made? How does this work?
@CoolyLLP pls help
| +183 | Future of PE | 43 | 4h |
| +33 | What are you actually using AI for in PE? | 14 | 8h |
| +33 | Best industry/job for entrepreneurship? | 11 | 2d |
| +20 | Burn Out in PE - What Comes Next? | 3 | 3d |
| +19 | Laid off from MM PE - Seeking Help | 5 | 7h |
| +19 | Firm not transferring me to NYC | 11 | 7h |
| +15 | Buyside in London with nice WLB and pay | 15 | 13h |
| +12 | Value Creation Initiatives (That aren't add-ons) | 3 | 1d |
| +10 | Undergrad summer PE analyst positions | 3 | 4d |
| +9 | Question about HH 2028 | 2 | 3d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Fairly typical in VC, you see that quite often. You start building up a proper liquidation stack ahead of commons, class by class (ie First Series B gets its share, then Series A, then commons). If founders have good negotiation power, you might negotiate it to be pari-passu, especially with later rounds.
Assuming the first investor was sophisticated, this should only be able to happen with their approval. Any institutional investor worth their salt will have anti-dilution terms that let them approve further revisions to the cap stack.
Sometimes you see smaller investors get screwed in consortium deals though - it often requires majority, rather than unanimous, approval from Series x investors to change the cap table, and you could have a scenario where the lead investors participate in the subsequent round and approve diluting their old stake. The smaller investors might get a ROFR on subsequent equity issuances, but if it’s a much larger round the check size could be prohibitive
The answer is that it completely depends. Sophisticated investors will usually put in place various consents, such as individual and investor majority (either named investors or linked to a share class/classes). Therefore, they will usually have the ability to block changes to key economic terms. That being said - you do occasionally see certain aggressive preferred terms get reset in subsequent rounds (as an existing investor you may choose not to jeopardise the round or deter a high value investor from participating, to retain certain rights).
On liquidation pref, it’s fairly typical there will typically be a waterfall of seniority.
It's standard in the industry that new investors have the most senior liquidation preference (and is usually not contentious). If the older investors participate via their pro rata rights, they will also benefit from this downside protection since they are buying the same securities
Impedit at eos libero delectus. Nam veniam corrupti quas sed. Aut voluptatum a culpa nostrum eum. Ab ratione fugiat fugit consectetur fuga est. Voluptate et ut quidem asperiores.
Et eius unde aut quod voluptatem. Ab autem explicabo veniam omnis ut animi. Ipsam quae impedit impedit corporis. Placeat aperiam magni dicta officiis odit itaque.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...