About a week ago, I ran into this piece, which really shined some light on how complicated the issue of equity can be:
Quote:
Startup Employees Think They Are Going To Get Rich — Then A Horror Story Like This Happens
( . . .)
Among other special rights, the owners of preferred stock get "liquidation preferences."
What that means is that when the startup sells, or liquidates, the owners of preferred stock get a guaranteed amount of money from the sale.
Often, the owner of preferred stock gets a guaranteed return of 1X their investment.
Imagine a VC that buys 50% of a company for $50 million, for a $100 million post-money valuation. If that company then sells for $75 million, the VC gets more than 50% of the $75 million. The VC gets his or her $50 million out first, and then half of the remaining $25 million ($12.5 million) for a total return of $62.5 million. The common stock holders split the remaining $12.5 million.
( . . . )
Read more: http://www.businessinsider.com/how-l...#ixzz2x5gRQAxz
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Waaay over my head. But I know my dad issued stock once upon a time, the company went nowhere, he died, and my mom was sued by one of the investors. She had a lawyer draft a '#### off letter', and the issue was dropped. </coolstorybro>