Episode Summary

In this enlightening episode of "Venture Declassified," hosts Ben Pidgeon, Mike Kelly, and Jacob Spock tackle the subject of waterfall analysis, offering listeners a clear understanding of its role in the investment process. The topic comes to life through a real-life scenario where their portfolio company faced an acquisition offer, leading to choices between cash, equity, or a mix of both.

Ben starts by defining waterfall analysis, explaining the allocation of returns and the considerations for investors, like liabilities, deferred wages, and fees. Mike emphasizes the importance for angel investors to ask for detailed breakdowns and understand the financial health of the acquiring company. Jacob underscores conducting due diligence and evaluating various payout options such as cash, equity, and earn-outs.

Adding to the complexity, they explore liquidation preferences, convertible notes, and safes, and how these elements can significantly affect investor returns during an exit event. Jacob emphasizes the importance of understanding these factors to make informed investment decisions.

This episode of "Venture Declassified" is packed with valuable insights for both novice and experienced investors, making it essential listening for anyone involved in the startup investment ecosystem. Tune in to gain a deeper comprehension of waterfall analysis and navigate the nuanced world of investment returns more effectively.

Key Topics

• Definition and explanation of waterfall analysis

• Breakdown of options: Cash, equity, earn-out, seller’s notes and buyer’s notes

• Understanding financials and capital structure of the acquirer

• Evaluating the acquiring company: Private equity vs. venture-backed firms

• Situational analysis for decision making:

• Keeping money in vs. cashing out

• Impact of overall portfolio performance and liquidity needs

• Evaluating industry growth and leadership team

Connect

Mike Kelly

• LinkedIn

• Website

• Developer Town

Ben Pidgeon

• LinkedIn

• VisionTech

Jacob Schpok

• LinkedIn

• Elevate Ventures

Hear more interviews and stories like this one at www.VentureDeclassified.com

The information provided on the show is not intended to be investment advice and should not be relied upon as such. The investors on today’s episode are providing their opinions based on their own assessment of the businesses or topics presented. Those opinions should not be considered professional investment advice. If they start up pitched as a part of this episode, it is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell, subscribe for or buy any securities.