Exiting your startup? Liquidation Preference will determine how much money you get

Simply put, it is the preference towards exit pickings for each class of shareholders in a company in the event of a strategic exit or sale for the shareholders. The Liquidation Preference clause and the waterfall it ensconces is a watershed provision in all term sheets and investment documents that usually decides who walks away grinning to the bank or otherwise.

Since a company chiefly bears exit returns to its shareholders and investors either through an IPO (which is when all private contractual agreements governing classes of securities fall away) or pre IPO sale of business, it is imperative for an investor to pre determine what component or percentage of the sale proceeds it will be entitled to when the cash is counted.

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What do Venture Capitalists or investors look for in a startup?

Harish Bahl, Founder & CEO of Smile talks about the four risks that any investor tries to mitigate when they look for investing in a startup business.

  1. A business model is an important aspect to consider. One must check for its viability and soundness. There are various examples of good companies with good ideas that had to shut shop because of an unviable business model. Continue reading

Your first pitch – What works?

Pitching to your prospective stakeholders, whether it’s the first angel investor or a potential cofounder – is one of the most crucial and the toughest phase in a startup journey. As the true propeller and a must-have element for any business growth, these stakeholders will help shape your idea into a tangible being. They will buy into your dream and help you achieve it. Basis my experience, I comprehend that almost all of the above stakeholders will raise variety of questions at the pitch desk, however, their evaluation parameters remain common at the base level. Parenthetically, it’s not just the ‘Big Idea’ that everyone is looking for, but lots more than what meets the eye.

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