When discussing the economics of a VC deal, one often hears the question “What is the valuation?” While the valuation of a company, determined by multiplying the number of shares outstanding by the price per share, is one component of the deal, it’s a mistake to focus only on the valuation when considering the economics of a deal.
In this chapter we discuss all of the terms that make up the economics of the deal, including price, liquidation preference, pay-to-play, vesting, the employee pool, and antidilution.
In addition to defining and describing each terms, we give extensive examples in this chapter. Grab a beer – take your time – there’s a lot here. Almost all of the terms also have a special bonus “The Entrepreneurs Perspective” from our good friend Matt Blumberg, the CEO of Return Path.