Agile VC

DECEMBER 4, 2014

But delaying or avoiding the conversation often results in it being more awkward than it needs to be. You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently. Once you have the framework, it’s simply a matter of having the conversation and reaching an agreement.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Startup Company Lawyer

AUGUST 31, 2012

In fact, the form of convertible debt documents that YC recommends that their companies use has been recently revised to include a provision that forces a conversion of the debt into a pre-negotiated Series AA preferred stock upon the consent of a majority in interest of the convertible note holders.

Convertible Security 73

Convertible Security Equity Security Preferred Stock 73

Both Sides of the Table

SEPTEMBER 18, 2014

These are all real conversations. What if when you have that conversation you don’t agree? If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. I have them all the time. I’m bored of it. ” Simple. And so forth.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Austin Startup

JULY 6, 2018

More traditional and comprehensive programs often require 5–8% of common stock, but often provide between $20K and $100K up-front as well. Comparing Startup Accelerators was originally published in Austin Startups on Medium, where people are continuing the conversation by highlighting and responding to this story.

Dilution 48

Dilution Startup Technical Review Equity 48

Up and Running

SEPTEMBER 19, 2017

For a business that anticipates needing, for example, $500,000 in startup capital, that means that best-case scenario Klemm can expect to give up half of his business’s common stock (and an even larger percentage of control of the business once the deal’s fine print provisions are considered).

Private Equity 94

Private Equity Pre-Money Valuation Equity Startup 94

Austin Startup

JULY 22, 2021

Pitch for a Fast Track into Capital Factory with a $100,000 Investment was originally published in Austin Startups on Medium, where people are continuing the conversation by highlighting and responding to this story. Female Founders!

San Antonio 107

San Antonio Dallas Houston Founder 107

Both Sides of the Table

APRIL 14, 2010

Liquidation preference is the amount of money that an investor gets paid before the common stock (e.g. It also gets the new investor concerned that management (common stock holders) will not be incentivized because they realize that the investors will take most of the money unless there is a big upside scenario.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Up and Running

AUGUST 17, 2015

C Corp versus LLC, non-competes, liquidation preferences, preferred versus common stock, and so on). During our fundraising conversations, I’ve been constantly amazed by the percent of people I’ve spoken to in the venture capital community that have MBAs.

Entrepreneur 60

Entrepreneur Cofounder Angel Investor eCommerce 60

Berkonomics

JANUARY 6, 2022

A rather common but small dividend rate of six percent becomes a massive amount after seven years, almost half again the value of the original investment. Conversely, I have praised and seen others praise VCs who volunteer to eliminate participation clauses even before knowing the ultimate sales price in a deal.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

Startup Professionals Musings

JANUARY 27, 2012

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. This clause attempts to protect the conversion price of stock of Angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 223

Scott Edward Walker

APRIL 9, 2012

Part 3 will cover certain special issues, such as (i) what happens if the startup is acquired prior to the note’s conversion to equity? (ii) ii) what happens if the maturity date is reached prior to the note’s conversion to equity? Why Can’t a Startup Issue Shares of Common Stock to Investors?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

www.inc.com

SEPTEMBER 24, 2011

Graham also pushes for common stock, the right to participate in future funding rounds to preserve the size of the stake, and a guaranteed seat on the board. In most cases, Arizona Bays management team asks for a stake of at least 20 percent. Graham liked the idea. Arizona Bay would also get one of three board seats.

Arizona 40

Arizona Equity Iowa Venture Capital 40

Startup Professionals Musings

SEPTEMBER 14, 2010

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. This clause attempts to protect the conversion price of stock of angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

Gust

OCTOBER 12, 2011

In Part II, we looked at the mandatory conversion language that is at the heart of any convertible debt financing. In my experience, a term of 12 to 24 months is common, with 12 months being on the short end. Readers may find it helpful to download the sample term sheet from my firm’s website and follow along with the commentary.

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

The Startup Lawyer

MARCH 17, 2010

4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 7) Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations. (8) Here’s what I’d do in the beginning: Incorporation. (1) 1) Entity Choice: Corporation or Corporation. (2) Hell Yes. (9)

Accredited Investor 112

Accredited Investor Delaware NDA Vesting 112

The Startup Lawyer

MARCH 17, 2010

4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 7) Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations. (8) Here’s what I’d do in the beginning: Incorporation. (1) 1) Entity Choice: Corporation or Corporation. (2) Hell Yes. (9)

Accredited Investor 112

Accredited Investor Delaware NDA Vesting 112

Gust

DECEMBER 18, 2013

The other factors bearing on the advisability of doing a convertible note are that it is debt, not equity (good for the investor, because in a down liquidation scenario the note gets paid out ahead of anything going to the founder; bad for the investor, because in an up liquidation scenario prior to conversion, the company can just pay off the note (..)

Valuation 150

Valuation Founder Seed Money Common Stock 150

Gust

SEPTEMBER 17, 2014

These are all real conversations. What if when you have that conversation you don’t agree? If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. I have them all the time. I’m bored of it. And so forth. Not in my experience.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Gust

OCTOBER 17, 2011

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. This clause attempts to protect the conversion price of stock of angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 158

Scott Edward Walker

MAY 15, 2012

What Happens If a Startup is Acquired Prior to the Note’s Conversion to Shares of Preferred Stock? As discussed in part 1 , in the context of a seed financing, a convertible note is a loan that typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.

Finance 64

Finance Founder Accredited Investor Preferred Stock 64

Scott Edward Walker

JUNE 9, 2019

The language in a VC term sheet relating to pro rata rights is typically akin to the following: All [Major] Investors shall have a pro rata right, based on their percentage equity ownership in the Company (assuming the conversion of all outstanding Preferred Stock into Common Stock and the exercise of all options outstanding under the Company’s stock (..)

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

ithacaVC

DECEMBER 13, 2013

Let’s assume that Founder X owns 800,000 shares of common stock and Founder Y owns 1,300,000 shares of common stock and that the option pool in total has 356,758 shares allocated (to make the total stated above). This clearly illustrates the power of a conversion discount. I have posted on this previously.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Gust

OCTOBER 21, 2011

In Parts II and III, we looked at commonly used mandatory and voluntary conversion language in convertible notes. Investors would be repaid their principal, plus accrued interest, divided by the conversion price (let’s say 30% discount, so 1 – 0.3 = 0.7). a mix of cash and stock) received by other equity holders in the transaction.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

Business Plan Blog

NOVEMBER 13, 2013

Various terms such as price cap, discount, conversion to equity, etc., The terms of the note are 10% discount and an automatic conversion after a financing of $1,000,000. 3) Giving non-voting stock. Bridge notes/loans are an example of convertible debt. can be incorporated in the agreement at the time of financing.

Finance 93

Finance Accredited Investor Angel Investor Seed Capital 93

The Next Web

JUNE 17, 2015

And, on a similar note, I would limit equity conversations to service providers that are going to be long-term in nature, helping you build your business over time. Now that we understand which service providers we are willing to have equity conversations with, next we have to understand how to structure these deals.

Equity 60

Equity Valuation Preferred Stock Common Stock 60

Up and Running

DECEMBER 1, 2015

Typically, employers that offer employees equity compensation will do so in the form of common stock, preferred stock, or stock options. Conversely, very junior employees have relatively little influence over the company, so their equity grants should be correspondingly much smaller, if at all.”.

Equity 60

Equity Employee Stock Options Vesting 60

Austin Startup

OCTOBER 18, 2017

If you’re in the most high risk, uncertain stage of a company’s life, and you’re already asking investors to sign a standardized document with slimmed down protections relative to those a VC would usually get, why (honestly) shouldn’t there be some kind of timeline to force a conversation with stakeholders if things haven’t gone as planned?

Silicon Valley 48

Silicon Valley Los Angeles Angel Investor Common Stock 48

keen.io

FEBRUARY 5, 2013

Kirk dropped an even-bigger weight onto the conversation when he added, “You’re asking me to give up about a half a million dollars.” I asked for equity in the form of restricted stock instead of common stock (In my research, I found there is a significant long-term gains tax advantage. Kyle was quick to respond.

Salary 50

Salary Equity Startup San Francisco 50

YoungUpstarts

JUNE 23, 2015

Pick up the phone and have a conversation. Do you have common stock (or membership units)? If preferred, what are the differences between common and preferred? Talk to other investors. Ask the promoter to put you in touch with other investors. Here are a few questions to get you started: How do you know the promoter?

Private Equity 100

Private Equity Common Stock Equity Reputation 100

Startup Company Lawyer

JANUARY 31, 2011

Automatic conversion: on a $1M equity financing with no conversion discount and no price cap , provided that the transaction documents provide for a right to purchase a pro rata share of future financings. (I Optional equity conversion: on other equity financings with no conversion discount and no price cap.

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

Austin Startup

OCTOBER 27, 2017

Out of State VCs When you’re not CEO Material Preferred Stock v. Common Stock Ask the Users Because we’re known as Startup/VC lawyers who don’t represent VCs (just companies), I often get asked about my thoughts on “founder friendliness.” Good entrepreneurs and advisors know that. Background reading: Local v.

Founder 48

Founder Cap Table Preferred Stock Common Stock 48

Duct Tape Marketing

JUNE 5, 2018

Do the best you can to avoid common stock photos. It can be so easy to get caught up in your everyday lingo, but the fact of the matter is, it doesn’t always make you sound smart. It confuses your audience more often than not because they don’t understand what you’re saying. Write conversationally.

Kansas City 76

Kansas City Kansas Audience Differentiation 76

Berkonomics

OCTOBER 1, 2015

A rather common but small dividend rate of six percent becomes a massive amount after seven years, almost half again the value of the original investment. Conversely, I have praised and seen others praise VCs who volunteer to eliminate participation clauses even before knowing the ultimate sales price in a deal.

Dividend 48

Dividend Preferred Stock IRR Participating Preferred 48

ReadWriteStart

MAY 8, 2012

Now, we’re focusing early conversations intently on our strategy for winning and our progress thus far, which gives investors a clearer picture of who we are and where we’re headed.” Take into consideration board seats, the investor’s equity stake in the business and whether they will receive preferred or common stock.

Cofounder 140

Cofounder Startup San Francisco Silicon Valley 140

ithacaVC

JANUARY 24, 2013

Let’s assume the following: Common Stock outstanding: 3,400,000 shares owned by the founders. And let’s assume that the debt has a 20% conversion discount. The X and Y are negotiated, with the Y typically being a date shortly before the convertible debt is all used up by the company in its operations.

Valuation 53

Valuation Balance Sheet Option Pool Dilution 53

Both Sides of the Table

MARCH 21, 2010

If the goals are achievable but the partner isn’t performing you have a “carrot&# to use in difficult conversations. Make the warrants for common stock and not preferred stock. This is the same as with employee stock options. Common Mistakes. Have minimums but a sliding scale.

Warrant 298

Warrant Dilution Startup Stock Options 298

Tim Keane

JANUARY 12, 2010

.   This is perceived by some investors as a way to assure that the founders are in the game for the long run. ·       Conversion provisions allowing preferred to convert to common if they choose or upon the closing of an IPO at a specified price.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68