When VC is both win/win *and* lose/lose

Silicon Beat covers the story of SolFocus (a clean power startup) and their recent VC round.

What’s interesting is that multiple firms (specifically NEA) became involved which increased the valuation of the company. Instead of only raising $12.5M they raised $32M.

Sounds great right? Not necessarily. When you take VC money you generally agree to sell them Series A preferred stock with included veto rights on an acquisition. If your investors don’t like the deal they can veto the purchase.

Generally speaking as long as you have a good VC firm they won’t veto the round unless they don’t think they’re making enough money. This generally means you have to be purchased for a minimum of 4-8x their investment.

In SolFocus terms this means they now have to be bought for at least $120M instead of just $40M.

Of course this might not be their exit strateg and maybe they feel the technology will end up being worth much more.



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