Deal Terminology - "$3M on $3M"?


3

When a VC says they want to do a "$3M on $3M" deal what does that mean?

Venture Capital

asked Oct 12 '09 at 13:23
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Kirk
227 points
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3 Answers


7

if you don't know what it means ... then it means:
"take the money - you are getting a good deal" ; )

it also means .... the VC thinks your company is worth $3M right now "pre money" and is proposing to invest $3M so your company would be worth $6M ("post money") and the VC owns 50% **. this is the simplest explanation.

(footnote)
** it does not mean you will own the other 50% of the company! This is where it gets very complicated - but at least I hope I answered your question.

answered Oct 12 '09 at 14:03
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Cj Cornell
471 points
  • CJ, thanks for this answer – Kirk 5 years ago

4

CJ is dead-on.

I'll expand on the "you still don't own 50%" bit:

  1. Often, as part of a funding round, investors will require that you setup an option pool for employees of the company (usually 15-25%).
  2. Usually some portion of your shares in the company will go on a vesting schedule. Which means that if you leave the company before the vesting period is up, you forfeit some percentage.
answered Oct 12 '09 at 15:34
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Dharmesh Shah
2,860 points

3

Even worse, you need to understand preference shares vs. common stock and how liquidation preference may affect your ownership. I'm a former entrepreneur turned VC. If you're interested in this topic I cover a lot of stuff here -- > http://www.bothsidesofthetable.com/pitching-a-vc/ also check out www.feld.com and www.venturehacks.com.

answered Oct 12 '09 at 17:06
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Mark Suster
545 points

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