For many founders, building and selling a successful venture-backed company for cash is the ultimate goal. However, the reality is that some companies will instead receive an equity-funded acquisition proposal in which equity of another private venture-backed company, rather than cash, represents all or a significant portion of the purchase price.
Because all equity is not created equal, it is important for founders to understand how to negotiate for better equity in the context of such an acquisition proposal. This article explores what better equity looks like and some strategies founders can use to negotiate for that equity.
To know what “better� equity is for the seller, it is necessary to understand what the “worst� and “best� stock is in the context an equity-funded acquisition by a private company buyer. The “worst� stock is plain common stock which does not enjoy any special rights and is subject to contractual restrictions which diminish its liquidity profile. Common stock sits at the bottom of the priority stack (after debt and preferred equity) in the event the company dissolves or is sold — thus, it is least valuable. Variations of transfer restrictions (e.g., a prohibition on private secondary sales) may further diminish the desirability of common stock by making it difficult or impossible for the holder to achieve liquidity outside of an M&A event or initial public offering (IPO).
In contrast, the “best� stock is (1) the acquirer’s most senior series of preferred stock, coupled with (2) additional contractual rights enhancing such stock’s liquidity profile. For our purposes here, we’ll call this “enhanced preferred stock.� All things being equal, founders and VCs should have a strong preference for enhanced preferred stock in an equity-funded acquisition for several reasons:
“Better� stock lies somewhere on the continuum between the common stock and enhanced preferred stock poles, with the type of stock and bundle of rights associated with such equity determining its precise location. Additional contractual rights and reduced restrictions may significantly improve the desirability of common stock and perhaps place the holder in a better position than it would have been as a preferred stockholder. For example, a seller able to negotiate the right to sell a certain amount of common stock to investors in the acquirer’s next preferred stock equity financing could be more favorably positioned than the holder of senior preferred stock without any enhanced preferred rights.
Negotiating for better stock. With a framework for understanding what better stock means, below are several strategies sellers can employ in M&A negotiations to obtain better stock than that initially offered by the buyer.
Avoiding dire situations and preserving leverage. Leverage matters in every negotiation and any strategy that ignores this reality is doomed to fail. To state the obvious, the first strategy to negotiate for better stock in an equity-funded acquisition is the first strategy in preparing for any M&A event: companies should do all they can to avoid being in a dire fire sale situation when a buyer comes knocking on their door. If the seller is a failing company seeking a sale as a last ditch effort to avoid shutting its doors, even the best strategies may be useless in negotiation since as soon as the buyer says “no�, the seller will likely fold its hand and agree to the deal offered.
Source: TechCrunch
Coral is a company that wants to “simplify the personal care space through smart automation,” and they’ve raised $4.3 million to get it done. Their first goal? An at-home, fully automated machine for painting your nails. Stick a finger in, press down, wait a few seconds and you’ve got a fully painted and dried nail. More than once in our conversations, the team referred to the idea as a “Keurig coffee machine, but for nails.”
It’s still early days for the company. While they’ve got a functional machine (pictured above), they’re quite clear about it being a prototype.
As such, they’re still staying pretty hush hush about the details, declining to say much about how it actually works. They did tell me that it paints one finger at a time, taking about 10 minutes to go from bare nails to all fingers painted and dried. To speed up drying time while ensuring a durable paint job, it’ll require Coral’s proprietary nail polish — so don’t expect to be able to pop open a bottle of nail polish and pour it in. Coral’s polish will come in pods (so the Keurig comparison is particularly fitting), which the user will be able to buy individually or get via subscription. Under the hood is a camera and some proprietary computer vision algorithms, allowing the machine to paint the nail accurately without requiring manual nail cleanup from the user after the fact.
Also still under wraps — or, more accurately, not determined yet — is the price. While Coral co-founder Ramya Venkateswaran tells me that she expects it to be a “premium device,” they haven’t nailed down an exact price just yet.
While we’ve seen all sorts of nail painting machines over the years (including ones that can do all kinds of wild art, like this one we saw at CES earlier this year), Coral says its system is the only one that works without requiring the user to first prime their nails with a base coat or clear coat it after. All you need here is a bare fingernail.
Coral’s team is currently made up of eight people — mostly mechanical, chemical and software engineers. Both co-founders, meanwhile, have backgrounds in hardware; Venkateswaran previously worked as a product strategy manager at Dolby, where she helped launch the Dolby Conference Phone. Her co-founder, Bradley Leong, raised around $800,000 on Kickstarter to ship Brydge (one of the earliest takes on a laptop-style iPad keyboard) back in 2012 before becoming a partner at the seed-stage venture fund Tandem Capital. It was during some industrial hardware research there, he tells me, when he found “the innovation that this machine is based off of.”
Vankateswaran tells me the team has raised $4.3 million to date from CrossLink Capital, Root Ventures, Tandem Capital and Y Combinator . The company is part of Y Combinator’s ongoing Winter 2020 class, so I’d expect to hear more about them as this batch’s demo day approaches in March of next year.
So what’s next? They’ll be working on turning the prototype into a consumer-ready device, and plan to spend the next few months running a small beta program (which you can sign up for here.)
Source: TechCrunch
It’s getting down to the wire, but if you’re shopping for gifts on Amazon you still have plenty of time to order and receive shipments before Christmas. Amazon Echos, Ring and Blink security products, Fire tablets, Kindles, and even Amazon eero mesh Wi-Fi routers and range extenders are all in stock and ready to ship.
Source: Digital trends
Join astrophysicist Janna Levin on a mind- and space-time-bending journey into the force to end all forces.
Source: Wired
This may have been the best year for genre television—ever.
Source: Wired
Boeing is getting ready to launch its new passenger spacecraft for a very special mission: Its first trip to the International Space Station (ISS). The Boeing CST-100 Starliner is the company’s contribution to NASA’s commercial crew program, which will see the U.S. regain the ability to launch astronauts to space from U.S. soil for the first time since the Space Shuttle program ended.
Today’s launch is scheduled for 6:36 AM EST (3:35 AM PST) and will take off from Florida’s Cape Canaveral Air Force Station. The Starliner capsule is loaded atop a ULA Atlas V rocket, which will deliver it to space before detaching, at which point the Starliner will propel itself the rest of the way to the required orbit for its docking with the ISS.
This is a key launch on the way to a crewed flight, but there isn’t anyone on board this time. Instead, this is what’s called the “orbital flight test” (OFT) for the Boeing-made crew capsule, which will test all systems in an actual flight to the station, with everything treated as though it were a crewed mission, but minus the astronauts.
If all goes to plan, a successful OFT will be a key milestone towards the target of flying a crewed test flight sometime during the first half of next year.
Source: TechCrunch
Lenskart, an omni-channel retailer in India that sells eyewear products, said on Friday that it has raised $275 million in a new financing round from SoftBank Vision Fund as it looks to expand its business in the nation.
As part of the new financing round — dubbed Series G — some of the nine-year-old startup’s existing investors are selling their stake, said Peyush Bansal, founder and chief executive of Lenskart in an interview with TechCrunch. He did not name the investors, though.
SoftBank Vision Fund’s investment pushes Lenskart’s all-time raise to $456 million. A person familiar with the matter told TechCrunch that the new round values Lenskart at over $1.5 billion.
The nine-year-old startup, which began as an e-commerce service to sell spectacles, contact lenses and eye care products, has expanded to brick and mortar stores in recent years. Today, the startup has presence in over 500 stores across more than 100 cities in India, it said. Online sales still account for more than 60% of the company’s overall revenue.
Bansal said the startup will use the fresh capital to improve its technology infrastructure and supply chain. “We are thrilled to have Softbank Vision Fund with us in our journey. Their understanding of consumer and technology will help us build the next edition of Lenskart,� he said.
According to industry estimates, more than half a billion people in India are affected by poor vision and need eyeglasses, but only 170 million of them have opted to get their vision corrected.
Lenskart said it sees immense potential in growing within India, especially in smaller towns and villages that don’t have many trained optometrists. To reduce the friction, it offers a free eye inspection tests to all potential customers. On its website, the startup uses a 3D AI model to allow users to check how different pairs of glasses would look on their face.
Much of the eyewear market in India remains unorganized. According to research firm Euromonitor International, India’s eyewear market is worth $4.6 billion.
More to follow…
Source: TechCrunch
We all love a good wagon, but the Green Mamba Metallic paint just pushes this Porsche over the top.
Source: CNET
NASA’s Commercial Crew Program has seen SpaceX take an uncrewed spaceship to the ISS — now it’s Boeing’s turn.
Source: CNET
He’s the cutest thing since Baby Groot.
Source: CNET