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. The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” Liquidation preference.

Term Sheet 223

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

Feld Thoughts

FEBRUARY 9, 2016

Much of it is very short term focused and, like a giant tractor beam, draws the conversation into a very short time horizon (as in days or weeks). I watched, participated, and suffered through every type of creative financing as companies were struggling to raise capital in this time frame. Or you might need to raise it.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Both Sides of the Table

SEPTEMBER 5, 2012

To better understand the arguments for / against convertible equity I suggest you read my posts on those topics: Is convertible debt preferable to equity? Was Paul Graham right in his “high resolution” financing post? Convertible Notes Also Can Have Multiple Liquidation Preferences. That’s right.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Both Sides of the Table

APRIL 14, 2010

That means that the likely have a minimum of $15 million in liquidation preferences. It will usually be higher because the liquidation preference has a dividend so if the deal is long in the tooth assume that the liquidation preference might be $20-22 million. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

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. The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” Liquidation preference.

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. What is a Convertible Note?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

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. The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” Liquidation preference.

Term Sheet 158

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

Feld Thoughts

JUNE 2, 2015

Or, if you just want the paragraph, it’s: “If this note converts at a price higher than the cap that you have been given you agree that in the conversion of the note into equity you agree to allow your stock to be converted such that you will receive no more than a 1x non-participating liquidation preference plus any agreed interest.”.

Liquidation Preference 70

Liquidation Preference Cap Table Angel Investor Post-Money Valuation 70

ithacaVC

DECEMBER 13, 2013

The share price is calculated by taking the pre-money valuation and dividing it by the number of shares outstanding pre-money. So Share Price (SP) = Pre-Money Valuation (PMV) / Shares Outstanding (SO). That is normal for a pre-money % as it will drop down to about 10% post money depending on size of round and valuation.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

K9 Ventures

MARCH 23, 2011

The convertible note was really intended as an instrument for a “bridge financing” – when an equity round was imminent, and likely to occur, but the company needed some money in between. In that case, it made good sense to have a debt instrument, where the note holder then converted into equity when the financing occurred.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

genylabs.typepad.com

SEPTEMBER 24, 2011

I wont bother going into details on start-up financing terms ( see this post for an overview of typical VC terms) except to say if you dont know and understand: the firms cap table and valuation. where your stock sits in the liquidity preference stack. what rights and preferences the founders and the other investors have.

Equity 40

Equity Technical Review San Jose Stock 40

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

Feld Thoughts

FEBRUARY 28, 2023

Corporate law: In Germany, most companies in general and most VC-financed companies are structured in the legal form of a “Gesellschaft mit beschränkter Haftung” (GmbH). Often, this integration results in VC-financed GmbH companies having little to do with the GmbH as envisaged by the law.

Germany 165

Germany Liquidation Preference Option Pool Advisory Board 165

VC Adventure

AUGUST 30, 2010

The most common forms of investment in early stage business are convertible debt and preferred equity. Typically this conversion is at a discount to the next equity round (to compensate the debt investors for their risk) and sometimes carries warrants (same rational) or a cap on the equity price that the debt converts into.

Angel Investor 103

Angel Investor Early Stage Equity Valuation 103

Both Sides of the Table

SEPTEMBER 8, 2012

It has both a “full rachet” and “multiple liquidation preferences.” But Paul Graham really did have a point in his “ high resolution fundraising ” post – that there is a problem – particularly in angel financing – with herding cats. ” I wrote about it here.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

abovethecrowd.com

FEBRUARY 24, 2015

Historically, different financial institutions specialized in different stages, because the assessment of risk and opportunity was considered unique at each stage — for example, a seed investor was unlikely to do late-stage financing, and vice versa. Conversely, these late stage private rounds have no such pageantry or process.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

thestartuplawyer.com

FEBRUARY 24, 2010

do not think being friends or relatives reduces the need for these difficult and/or awkward conversations. About the Author Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

Austin Startup

AUGUST 1, 2017

TL;DR: In a market that has historically idolized huge, splashy financings and exits, an increasing number of entrepreneurs are realizing that everyone else’s definition of success — particularly among certain large VCs — isn’t necessarily aligned with their own. If you’re confident you’ll get a huge exit, maybe.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

Scott Edward Walker

JUNE 9, 2011

Conversion Rights What Are Conversion Rights? As many of you know, VC investors are typically issued shares of preferred stock, not common stock. A conversion right is the right to convert shares of preferred stock into shares of common stock. There are two types of conversion rights: optional and mandatory.

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

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

Austin Startup

APRIL 1, 2017

out of state VCs Don’t rush a term sheet In assessing financing terms and interacting with their lead investors, most founders instinctively focus on two core things: economics and control. Background Reading: How to avoid “captive” company counsel Local v. And, broadly speaking, that is correct. Originally published at Silicon Hills Lawyer.

Term Sheet 48

Term Sheet Institutional Investors Technical Review Lead Investor 48