We're five posts into this MBA Mondays
series on Employee Equity and now we are going to start getting into
details. We've laid out the basics but we are not nearly done. I am just
starting to realize how complicated the issues around employee equity
are. That's not good. It's like paying taxes. Everybody does it and
nobody but the tax accountants understand it. Ugh.
Anyway, enough of that. Let's get into the issue of liquidation overhang.
When VC investors (and sometimes angels) invest in a startup company, they almost always buy preferred stock. In most startups, there are two classes of stock, common and preferred. The founders, employees, advisors, and sometimes the angels will typically own common stock. The investors will typically own preferred stock. The easiest way to think about this is the "sweat equity" will mostly be common and the "cash equity" will mostly be preferred.
To read the full, original article click on this link: A VC: Employee Equity: The Liquidation Overhang
Author: Fred Wilson
