![]() For example, a 1x LP means that if an investor invested € 1M and the company sells for € 1M, all the money would be taken by the investor. The VC has to protect itself from the hypothetical event that the companies it has invested in are sold for 2x and thus not fulfill the investment criterion of their investors (around 3x). This makes some sense since the ultimate goal of this clause is to discourage the sale of companies at low valuations. This clause gives the investor the right to, in case of a liquidity event, a certain predetermined amount of money with priority to other partners, founders and employees. A small note on Liquidation preference (preferential liquidity right) Furthermore, we will comment on the countermeasure we have invented to make this section of VC more logical and thereby more sustainable. This post will explain an exercise of self-criticism that we have conducted in K Fund about the liquidation preference clause that we normally include in our agreements. The challenging aspect is that taking money from a VC is no longer an option because your competitors will likely resort to it, if they can. VC isn’t only negative, it’s also a tool that can allow you to accomplish in two years what would normally take you at least four, without it. Oftentimes, professionals in the VC industry, with the excuse of watching over the wellbeing of our investors, forget to do an exercise of self-criticism and improvement. ![]() ![]() Moreover, if you are starting a new business you come across Venture Capital (VC) which, can make that s**t become even worse. Not only does it imply less time to sleep, for family, friends or leisure time, but it also implies a fundamental economic risk for entrepreneurs. Starting a new business is hard and often implies going through s**t. A new type of liquidation preference to reward founders- el Kolchon ![]()
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