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Venture Capital Markets

The Downside of IPO Veto Rights

Source: PitchBook. Graphic by Peter Schulz.

When joined the ranks of billion-dollar startups in November by raising money at a $1.62 billion valuation, CEO Marc Lore told the media that the deal terms were “clean”—implying that investors did not receive onerous protections that might hurt certain classes of shareholders later.

It’s true that the e-commerce company did not give investors the most punitive protections—guarantees of extra shares if the company goes public below a certain price. But investors did get the right to block any IPO from occurring if the offering price doesn’t return them at least 50% on their original investment, according to data from research firm PitchBook, which has partnered with The Information in tracking deal terms at private tech companies. That means a Jet IPO would need to be priced at a fully diluted valuation of $2.4 billion to avoid an investor veto.

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