Thursday, October 4, 2012

Yelp Secondary Has Capped Upside

I just spent most of the last hour with my nose in a variety of S-1 statements from recent IPOs.  This data nugget dropped out in the course of that research session.  From Yelp’s S-1, in reference to the late stage round they raised from Elevation Partners directly after Yelp decided not to sell to Google in Feb of 2010:

Pursuant to the stock transfer agreements, Elevation Partners may be required to pay the selling stockholders additional consideration in the future if Elevation Partners sells the shares purchased from our stockholders pursuant to these transactions for aggregate, cumulative proceeds, net of commissions, greater than three times the aggregate price that Elevation Partners paid for the shares. 

That probably looks like annoying legalese, but it’s an unprecedented late stage deal term that I’ve never seen before.  Founders and key employees in Yelp sold shares to Elevation Partners in a late stage, pre IPO round of financing.  This is normal.  But Elevation agreed to have their upside on this transaction capped.  Once Elevation makes a 3x return on these purchased shares, they need to start contributing back economics from the transaction to the original selling employees.  Elevation takes all the risk, but limits the upside.  Wild.

Notes

  1. dcrollins reblogged this from thegongshow and added:
    Don’t even get me started on this.
  2. gbattle said: I’m sure that the price was reflective of the lowered risk (all downside, capped upside). Still, a 3X cap late stage isn’t exactly small.
  3. caterpillarcowboy reblogged this from thegongshow and added:
    Why would they do this? Just to get into the deal?
  4. newspeedwayboogie said: what do you think the reasoning behind this is?
  5. thegongshow posted this