> nothing stops an unethical founder from raising 800k at a 8M cap, and turning right around and letting the company get acqui-hired for 4M a month later, pocketing $3.6M and leaving the investors with half their money.
Except that they just exchanged a stake worth $7.2m and sold it for $3.2m. Founders with large stock options are _more_ incentivized than even investors to maximize valuation in the event of a sale.
I understand that you want to make a bet while minimizing risk, but if you're going to try and guarantee your money back then as a company I'm going to price that in by minimizing the upside.
Without liquidation preferences, you as an investor can negotiate more reasonable valuations (if you're setting a cap of $8m and the company is willing to take a $4m buyout, you've seriously mispriced the company.) That means more potential upside.
Except that they just exchanged a stake worth $7.2m and sold it for $3.2m. Founders with large stock options are _more_ incentivized than even investors to maximize valuation in the event of a sale.
I understand that you want to make a bet while minimizing risk, but if you're going to try and guarantee your money back then as a company I'm going to price that in by minimizing the upside.
Without liquidation preferences, you as an investor can negotiate more reasonable valuations (if you're setting a cap of $8m and the company is willing to take a $4m buyout, you've seriously mispriced the company.) That means more potential upside.