anyone could give me some ideas why shares issued in subsequent rounds are more valuable than earlier rounds (for Direct venture capital investments) how to work out the level of control for various rounds of share holders? is it right to say, the earlier the shareholders the more control they will have over the company? thanks
In the lifecycle of a company what stage (offering) is riskiest? Seed, Early, First, IPO, Secondary? By that quick timeline you can tell that seed stage investing is much riskier than an IPO. So, in simplistic terms risk should be rewarded. That means that you pay less in seed stage for a share than in the IPO stage so your potential return (capital gain) can be higher. Is is not necessarily correct to say that the earlier the shareholder is in the game the more control they have. And control is determined by the provisions set forth in the shareholder agreements for each round that is offered.
Shares issued in subsequent rounds have priority over previous rounds in liquidation which makes them more valuable. This is to entice investments in the later stages i.e. C - D - E rounds. Earlier shareholders on have more control if they have a larger ownership percentage/board seats.
Agree with strikershank… In addition, earlier investors may charge their “cost of carry” to subsequent shareholders. In effect, earlier investors want to be compensated for their actual financial costs (interest costs, management costs, etc) in fronting the project + receive a premium for taking on the SUBSTANTIAL risk at the earliest stage of the project’s life.
Guys “valuable” does not necessarily mean a step-up-round or more money… The value is coming from the senior position.
^^^ Agree 110% with Mr. GG.