Gurley notes hyper-competition removed liquidation preference protection on IPOs, enabling founders to convert preferences below value.
“There was a term removed from most term sheets that gave investors the right to protect their LICPREF on an IPO, that's gone in most of these cases.”
Gurley explains compounding IPO ratchets create misalignment by making late investors want lower IPO prices.
“The the later stage investors that wrote this compounding ratchet term actually want the IPO to be as low as possible because they'll they'll get more shares.”