Client Spotlight: LumioWhen you are passionate about helping entrepreneurs, it doesn’t get much better than working with Max Gunawan. The founder of Lumio, Max is an architect, designer, maker, supply chain analyst, publicist, salesman, executive officer, marketer and shipping clerk all rolled into one. Not only that, but he manages to do all those jobs better than many who have just one of those titles. And he does it all with a smile. [Read more…]
There is a terrific article on venture capital deals by Steven Davidoff in yesterday’s New York Times’ Deal Book titled In Venture Capital Deals, Not Every Founder Will Be a Zuckerberg. Davidoff examines a case recently litigated in Delaware courts where a company, Bloodhound Technologies, was sold for $82.5 million eleven years after its first funding round. The five founders of the company only received $36,000 in the sale, whereas the management team at the time of the sale received $15 million and the VCs received virtually all of the rest (~$66 million).
How does this happen? The terms venture capitalists negotiate when they make investments can, over time and successive investments, give the investors the power to push the founders out of management and gain control of the company. Moreover, the “liquidation preference” in preferred stock allows investors to get their money back before anyone else gets anything, and they will often then “participate” in the remaining proceeds. In some circumstances investors negotiate preferences that are even more than what they put in, or can, as they did in the case of Bloodhound, negotiate a “cumulative dividend” that grows over time (cumulative dividends are rare, but preferences and terms that give investors control leverage are not). [Read more…]