The Liquidation Preference Effect
▻https://hackernoon.com/the-liquidation-preference-effect-2d3829311ad7?source=rss----3a8144eabfe
Your #equity Could Be Worth Millions — Or NothingIllustration by Meredith MiotkeIn 2014, mobile security startup Good Technology was valued at $1.1 billion. Employees thought their equity packages were winning lottery tickets. They were wrong.One year later, Good sold for $425 million. Employee share prices tumbled from $4.32 a share to $0.44. While executives made millions, employees — some of whom paid $100,000+ in taxes on their equity — made next to nothing.Good Technology’s situation isn’t uncommon. Like so many startups, it had investors and board members whose equity was protected by high liquidation preference — a guarantee that they get paid first and at least a certain amount when the company sells. When startup investors make millions in a sale, but money runs dry before reaching employees, a (...)
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