What is an Exit Waterfall? Decoding Liquidation Preferences for Deep Tech Startups. A chat with Daniel Franke, Investment Director @ M Ventures

Host: Nicola Marchese Guest: Daniel Franke #DeepTechCatalyst

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KEY THEMES COVERED:

1. Understanding the Exit Waterfall: This section introduces the concept of the exit waterfall, explaining how funds are distributed among shareholders following the sale of a company, and why it's crucial for founders to grasp this before launching their startups.

2. Liquidation Preferences: Discusses the specifics of liquidation preferences and the two main types—non-participating and participating. The narrative covers how these preferences dictate the order of payouts during a company's liquidation and their impact on different exit scenarios.

3. An Exit Scenario Analysis: Detailed examination of hypothetical exit scenarios to illustrate how different liquidation preferences affect the distribution of funds among seed investors, pre-seed investors, and founders, using specific investment amounts and ownership percentages.

4. Impact of Liquidation Preferences on Founders and Investors: Explores how various types of liquidation preferences impact the financial returns of founders and investors, highlighting the strategic implications for different exit outcomes.

5. Strategic Considerations and Market Realities: Analyzes negotiation dynamics and the impact of established precedents in investment rounds on future funding. Emphasizes the importance of strategic and forward-thinking decision-making in venture capital agreements.

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