Before settling on a number of authorized shares, consider (1) the maximum number of shares you can authorize for the state’s minimum filing fee, (2) the incremental cost of authorizing additional shares versus the cost of amending your company’s charter, and (3) how much equity you expect to issue before you need financing. MORE >>

Adeo was focused on creating mechanisms to protect founders who may lose control of the companies they created after raising financing from investors.  The current customary form of venture financing documents has not changed much since with mid-1970s when they first became widely adopted in Silicon Valley. Voting.  Directors.  MORE >>

2) Issuing of massive option grant to management along with new financing at a below-market valuation. Result: Series A investors are diluted from 10% to 1% of the company, even though the company was doing well and in a normal financing would have only been slightly diluted. Here are a few examples. Company gets sold for $30m. MORE >>

Paul Graham kicked it off by noting that all the financings in the recent YC batch were converts. The second are control rights: board seats, the ability to block financings and acquisitions, the ability to change management, etc. I believe that pretty much every other seed investor who advocates converts also assumes they have a cap. MORE >>

A very common scheme used in venture financed companies is four year vesting.  This typically has a one year cliff (after one year 25% is vested) and then three additional years during which stock (or options as is often the case in venture financed companies) vests ratable on a monthly or quarterly basis.  This can be an ugly process. MORE >>