Both Sides of the Table

SEPTEMBER 18, 2014

It’s like we need a finance 101 course for entrepreneurs. In finance they call it “terminal value” but the truth is the price is as arbitrary at your A round as it is at your seed round. And now I have to explain to team that they’re taking more dilution than they expected if we do a down round.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Up and Running

SEPTEMBER 20, 2021

The use of a cap table for a company comes into play when it has to track the total amount of shares, the value of shares, and the equity ownership of all the shareholders. The data of the company, such as debt and the company’s equity ownership, is laid out with the help of a cap table. Total share ownership.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

ithacaVC

APRIL 5, 2011

It should also provide a combined summary so that it is easy to see who owns what % of the company on a fully diluted and converted basis. One rule of simple cap tables is to issue “normal” stock to founders (common stock only) and investors (typically preferred stock, but sometimes common stock to early friends and family).

Common Stock 45

Common Stock Stock Cap Table Preferred Stock 45

Haystack

JULY 8, 2018

For employees at early-stage companies… the equity you’ve been granted is likely common stock, just like the founders. You can read more about the types of stock granted in startups here. Knowing where you sit on this preference stack is a good thing to know, so you should ask.

Early Stage 95

Early Stage Dilution Private Equity Common Stock 95

Startup Professionals Musings

JANUARY 27, 2012

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. Define equity type. The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold.

Term Sheet 223

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

Gust

OCTOBER 12, 2011

Last week , we took the plunge and began dissecting an example term sheet for a convertible debt financing round piece by piece. In Part II, we looked at the mandatory conversion language that is at the heart of any convertible debt financing. First, a word about the maturity date.

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

Gust

OCTOBER 21, 2011

For convertible notes, the only liquidity event we need be concerned with is an acquisition of the startup in the near future, before the maturity date; otherwise, the notes will convert to equity of one kind or another, and the eventual sale of that equity (in a public offering, acquisition, or private sale) is a different subject for another day.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

Scott Edward Walker

JUNE 9, 2019

Over the past few weeks, two of my clients have received financing term sheets in which the investors requested super pro rata rights. Simply put, pro rata rights permit the investor to maintain its percentage ownership in subsequent financing rounds. Introduction. Pro Rata Rights.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

keen.io

FEBRUARY 5, 2013

For example: Don’t accept equity compensation (stock shares) without knowing the percentage of the company you’ll own. To begin answering this question, I started on a quest to understand startup financing. From there, I began googling things like “first employee startup equity” and “startup offer negotiation.”

Salary 50

Salary Equity Startup San Francisco 50

Startup Professionals Musings

SEPTEMBER 14, 2010

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. Define equity type. The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold.

Term Sheet 227

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

Scott Edward Walker

APRIL 9, 2012

Introduction We are in the golden age of seed financing. Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook. A convertible note is short-term debt that converts into equity.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

www.payne.org

SEPTEMBER 22, 2011

Startup Equity For Employees. 2 Stock Classes: Common and Preferred. 3 Dilution. 5 Stock vs Options. 6 Founders / Restricted Stock. 7 Salary vs Equity. Important disclaimer: Ive got experience negotiating stock compensation packages from both sides of the table. From Payne.org Wiki. 4 Vesting.

Equity 56

Equity Employee Vesting Preferred Stock 56

Gust

OCTOBER 17, 2011

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. Define equity type. The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold.

Term Sheet 158

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

Startup Company Lawyer

JANUARY 9, 2011

Convertible debt with a price cap seems to be the preferred structure for early-stage financings. Over the last 12 months, I’ve noticed a trend where early-stage startup companies raise seed financings of between $250K and $1M using a convertible note with a price cap. Is a priced Series A financing a valid alternative?

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

Gust

SEPTEMBER 17, 2014

It’s like we need a finance 101 course for entrepreneurs. In finance they call it “terminal value” but the truth is the price is as arbitrary at your A round as it is at your seed round. And now I have to explain to team that they’re taking more dilution than they expected if we do a down round. Me: More dilution?

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Tim Keane

JANUARY 12, 2010

The investors and the entrepreneurs are – or should be – aware that the price of the company’s equity is set by the market – in simplest terms, what an informed buyer is willing to pay. For angel groups, the distinction between groups and VCs on this issue is dwindling, especially as angel groups do bigger rounds of financing.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

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

ithacaVC

DECEMBER 13, 2013

The option plan shares available for future issuance typically represent the number of additional options needed for hiring planned up to the point of the NEXT financing (as in we are doing a Series A round now, how many options do we need prior to doing a Series B round). times more equity than Founder X. after the financing closes).

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Startup Company Lawyer

MAY 4, 2009

If a founder’s company raises more than $50,000 in debt or equity financing, excluding funds from the founder, within 18 months of formation, then the founder must pay a tuition fee of $4,500, which is used to cover the Institute’s expenses in providing the program.

Founder 28

Founder Warrant San Francisco Intellectual Property 28

venturehacks.com

MARCH 21, 2008

Advisor compensation Whether you’re hiring a normal advisor or super advisor: Advisory shares are usually issued as common stock options. Finally, there is a beauty to paying in equity rather than an equivalent amount of cash. If you pay in equity, you pay once and keep getting served ad infinitum.

Advisory Board 44

Advisory Board Cap Table Vesting Equity 44

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

K9 Ventures

NOVEMBER 21, 2011

3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity. Founders typically hold Common Stock in the company, but they (obviously) want to sell the Common Stock at the same price as the Preferred price or close to it.

Founder 87

Founder Common Stock Preferred Stock Stock 87

ithacaVC

JUNE 28, 2011

Let’s take the following hypo: you are the CEO of Company XYZ, and you just raised $2mm in a Series A financing. In the financing there are 3 institutional investors and 4 high net worth individuals. Let’s assume that future equity financings will be needed as usually is the case.

Warrant 53

Warrant Common Stock Liquidation Preference Institutional Investors 53

K9 Ventures

NOVEMBER 21, 2011

3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity. Founders typically hold Common Stock in the company, but they (obviously) want to sell the Common Stock at the same price as the Preferred price or close to it.

Founder 84

Founder Common Stock Preferred Stock Stock 84

The Startup Lawyer

FEBRUARY 4, 2011

If an incubator offers your startup $25,000 in exchange for 6% equity, the pre-money valuation is a whopping $391,667. Rather than assign a monetary value to the intangibles, a startup should instead assign an equity percentage value to intangibles like mentorship. Other incubators may want to set up an option pool.

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

ithacaVC

FEBRUARY 23, 2011

The MCOP can serve a critical role as founders and other management team members are diluted down by rounds of financing or if their equity is not in the money. Also, if the preferred stock carries a multiple liquidation preference (like 2X), then the ALP will obviously be more than the original purchase price.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

venturehacks.com

OCTOBER 21, 2010

Reading on, the term sheet states, “The $8 million pre-money valuation includes an option pool equal to 20% of the post-financing fully diluted capitalization.&# First, the option pool only dilutes the common stockholders. That does work if the company gets sold before another round of financing.

Option Pool 68

Option Pool Pre-Money Valuation Dilution Warrant 68

blog.simeonov.com

FEBRUARY 22, 2010

It outlines key points of agreement between founders around IP ownership, equity ownership, vesting, etc. The number of separate documents may vary but they fall into two categories: Those related to equity, typically a restricted stock purchase agreement (RSPA) and associated escrow and other agreements. more details ].

Founder 44

Founder Vesting Agile Startup 44

Professor VC

JULY 25, 2013

One area I''ve noticed a lot more recently are angel investors and seed stage funds trying to grab a little bit extra, whether it''s warrants for leading the round, advisor shares to go along with the investment, or a common stock stake for just being who they are.

Term Sheet 46

Term Sheet Silicon Valley Syndicate Syndication 46