Sorry can someone explain a bit more about the Small Win Scenario and how you still get all your money back? Say Snapchat IPO's for $1B and you invested $100M at a $3B valuation, wouldn't you only get $33M of your money back? Or is that the caveat in "assuming I’m the most senior investor"?. Everyone investing at these valuation can't all be the most senior investor right?
This depends on how the liquidation preference is structured. Sometimes each new Series is made more senior than the prior series, so the last money in gets paid first - in that case if the last investor put in $100m they would get it all out before any of the other investors got paid. In other cases, the different series of preferred stock have a "pari passu" preference, meaning they all have equal priority - so in that case, you'd calculate each investor's liquidation preference as a percentage of the total liquidation preference owed to all investors, and they'd split the available proceeds according to that percentage.
This is correct in an M&A scenario, but usually not in an IPO. In an IPO, the most common treatment of preferred is to force-convert everyone who holds it to the equivalent amount of common stock, and such a term typically appears in later-round VC term sheets.
Not only do public investors dislike having a junior series of common stock out of the gate (Google-style two-class shares notwithstanding), but the special rights that come with VC-type preferred stock (series votes, class votes, rights to appoint directors, anti-dilution, blocking M&A, etc.) are eliminated once there are public shareholders.
[Speaking as a former VC now public investor who builds and sells VC cap table modeling software.]
Yeah, I had the same question. If there are 2 investors each investing 50M, and they're equally senior, they both get half of the sale value if it's < 100M. They get 50M + 8%/y if it's sold for 100M-3B. And they get 1/60 each if it's sold for >= 3B.
That sounds like a good deal even if you think SnapChat is only worth 200M...
Hmmm, he does say "If I put a hundred million dollars into Snapchat today at a 3 billion dollar valuation, three things can happen:". Doesn't that roughly mean he owns 3.3% of the company, so would be entitled to only 3.3% of the return? Or in an IPO would he be one of the only ones selling his stock so he would get his cash out?
