Reengineering the Mechanics of the Exit Waterfall (Venture Capital Review)
In venture-backed M&A transactions, the "exit waterfall" generally refers to the legal mechanism by which various stakeholders get paid out in an acquisition. That legal mechanism is almost always contained in the corporate charter of the acquired company (and sometimes in related documents). In many venture-backed M&A transactions, however, the exit waterfall is increasingly flowing in unintended directions causing unnecessary legal disputes and anxiety at the time of sale.
This article will cover a few of the more recent waterfall misdirections and make a recommendation going forward.
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