Oct
24
I discovered a brilliant blog entry by Paul Allen (the other one) on his experience with Liquidation preferences. It uses the excellent case of how the epinions founders got zero after a $30 million sale of their business and subsequent valueation of $300 million 18 months later.
Here’s a few extracts:
Today, the Epinions portion of Shopping.com is worth hundreds of millions, but at the time of the DealTime merger, Epinions was valued at roughly $30 million, which rendered all common shares worthless.
“The question we’re asking,” said one former Epinions employee who asked not to be identified and who plans to be part of the lawsuit, “is how this company supposedly worth only $30 million was suddenly worth $300 million only 18 months later.”
and..
If preferred shareholders control the board, they therefore have the power to crush the common shareholders by triggering a liquidation event at any time. If the valuation at that point is not higher than the Liquidation Preference, then the common shareholders get nothing.
Paul also talks about the history of MyFamily.com, how they took on a truckload more liquidation preferences via an acquisition and their experience dodging liquidation preferences
