The Surprisingly Not-Terrible Impact of All Those Late-Stage Rounds on IPOs

Double-alaskan-rainbowYou’ve seen the headlines; you know that over the last couple of years, a growing number of startups has gone public at valuations below where they were valued as privately held companies (or sunk past them quickly).

You’ve also come to understand that a lot of late, and often lofty, private company valuations are getting set by investors who receive preferred shares in exchange for their checks. What that means: those investors receive downside protection in the form of rights to get paid ahead of other investors — or to get paid back more than other investors — in case the companies’ value declines.

There’s a silver lining, though. According to new research out of the law firmFenwick & West, which has been actively tracking financing terms, of the 41 U.S.-based technology companies that went public either last year or 2014 and that had raised venture funding in the prior three years (life sciences companies were not included), just 20 percent — that’s eight companies — saw these so-called ratchets triggered.

More here.


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