All my past posts on liquidation pref, anti-dilution, and returning a fund can be explained using this example.
Let's dive deeper.
Unacademy raised $880M over 12 funding rounds. Funds own 75% of the company. Gaurav Munjal, the founder, owns 3.4%.
Back in March 2022, the company was valued at $3.44B. Fast forward to now – the $800M offer is a massive drop.
Now, who made how much OR why does liq pref kick in?
The investors who invested $880M want their money out first before the founders. If this was 2X, then $1760M would need to be returned before the founders make any money.
So, as a founder, Gaurav Munjal built a ₹6800 cr company and made no money.
But here’s the catch – founders have taken secondaries of ₹656 cr, so kudos to them for taking money off the table.
Was it a good return for a fund? Did it return a fund?
Why didn’t VCs take money off the table?
Blume invested via its Fund 2:
- Fund size: ₹400 cr
- Ownership: 2.2%
- Value at ₹6800 cr: ₹149 cr
- Secondaries taken: ₹71.5 cr
- Multiple on fund: (149 + 71.5) / 400 = 0.55X of the fund.
Elevation and Blume took exits during the course of these funding rounds.
However, others didn’t because they were waiting for this 0.55X to turn into a 2X or 3X, which makes it a good investment.
Why is anti-dilution important but won’t get triggered here?
- It’s a slump sale.
- 1X liq pref will hit, which is fine.
- Anti-dilution would apply only if there was a funding round at this price
Key Takeaways:
- Take money off the table – be it as a founder or investor.
- Liq pref is super critical – don’t ever give over 1X.
- Dragon outcomes are very hard to achieve in the Indian VC ecosystem, so model your fund to account for ₹5000-6000 cr outcomes rather than ₹30,000 cr outcomes.
Source: Tracxn
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