Startup Professionals Musings

AUGUST 1, 2016

Getting investors to trust you with their money is always a challenge, and it’s even more difficult in the early stages, where you don’t have a significant revenue stream, a few customers, or maybe even a product yet. At these stages, it’s all about you, and your ability to communicate and execute effectively.

Due Diligence 120

Due Diligence Intellectual Property Preferred Stock Seed Stage 120

Both Sides of the Table

AUGUST 30, 2010

Funnily enough I just answered this question yesterday on Quora when somebody asked, “Why would an early-stage investor specifically NOT prefer a convertible note structure to straight equity (e.g. a priced/valued preferred stock financing)?&#. Why many early-stage investors DO price rounds (e.g.

Equity 319

Equity Early Stage Angel Investor Valuation 319

Berkonomics

DECEMBER 20, 2018

Why are you so strongly sold on royalty licensing as the most effective way to finance a tech-based early stage company? What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity? I asked him five important questions, which he answered, and I’ve summarized below.

IP 54

IP Intellectual Property Investment Bankers Product 54

Berkonomics

DECEMBER 20, 2018

Why are you so strongly sold on royalty licensing as the most effective way to finance a tech-based early stage company? What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity? I asked him five important questions, which he answered, and I’ve summarized below.

IP 48

IP Intellectual Property Investment Bankers Product 48

Both Sides of the Table

SEPTEMBER 5, 2012

In a standard VC term sheet there is a standard term called an “anti dilution provision” and they are in nearly 100% of deals. You rarely find full ratchets in early-stage deals any more. It has nowhere near the same dilutive effects as a full ratchet except in extreme edge cases. ” Full R at-shits.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Both Sides of the Table

MARCH 21, 2010

Future investors aren’t likely to mind that you had a PBW program because the dilution will be taken before they invest. Early in your company’s evolution, high-potential individuals take a bigger risk to join you so you’re more liberal with your allocations to them. This is the same as with employee stock options.

Warrant 298

Warrant Dilution Startup Stock Options 298

Gust

OCTOBER 21, 2011

Assuming a hypothetical $100,000 investment at a 10% interest rate, this kind of payoff would yield a return of $5,000 ( 5% ) six months later – not exactly the kind of return angel investors are looking for when they make risky early stage investments. 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

www.payne.org

SEPTEMBER 22, 2011

2 Stock Classes: Common and Preferred. 3 Dilution. 5 Stock vs Options. 6 Founders / Restricted Stock. The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and Im getting more calls from friends asking for help understanding startup stock (equity) offers. 4 Vesting.

Equity 56

Equity Employee Vesting Preferred Stock 56

Tim Keane

JANUARY 12, 2010

Term-sheets for preferred stock offerings are designed to protect the investor in case things don’t go as well as planned.   A cumulative dividend can get to be very expensive and is not often a feature in early stage terms.   The answer to that, in a word, is risk, - the uncertainty of outcome.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Scott Edward Walker

SEPTEMBER 21, 2011

Finally, unless the startup is raising at least approximately $750,000, it generally is not in the company’s interest to issue shares of preferred stock. Moreover, the company would need to be valued at the time of the investment, which is obviously difficult at an early stage and could be extremely dilutive to the founders.

Preferred Stock 45

Preferred Stock Angel Investor Entrepreneur Common Stock 45

The Startup Lawyer

FEBRUARY 4, 2011

As equity in the company tends to be the currency of early stage startups, the startup should have a good foundation for assigning value in terms of equity. Most incubators take common stock and sit “side-by-side&# with the founders, but some may want some (weak) preferred stock and/or dilution protection.

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

Up and Running

SEPTEMBER 20, 2021

Furthermore, there are various forms of equity, such as preferred stock, common stock, and convertible notes, which influence the present and potential future investors. Preference shares. A class of stock with special rights as described in your startup is called preference shares. Convertible notes.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

Startup Company Lawyer

JANUARY 11, 2010

I think many sophisticated angel investors realize that convertible bridge notes do not adequately compensate angel investors for the risk that they take in funding early-stage companies. If the investor had invested $500K in a Series A Preferred Stock at a $4.5M

Angel Investor 39

Angel Investor Valuation Bridge Financing Preferred Stock 39

Professor VC

JANUARY 17, 2008

One of the panelists mentioned that they have gotten very valuation sensitive (nothing wrong with that) and like to purchase preferred stock rather than invest in convertible notes. I take CFO roles in early stage companies and participate on the management team during the early financings and business model development phases.

Pre-Money Valuation 28

Pre-Money Valuation Angel Investor Angel Groups Valuation 28

Gust

MAY 24, 2012

By contrast, venture capital and angel investments normally take the form of Preferred Stock with rights and preferences set forth in the company’s Certificate of Incorporation and other governance documents.

IPO 159

IPO Equity Common Stock Stock 159

www.paulgraham.com

APRIL 28, 2010

Sometimes angels deal terms are as fearsome as VCs.Other angels, particularly in the earliest stages, will invest basedon a two-page agreement. Whatkind of anti-dilution protection do they want? Angels and even VC firms occasionally do this, but they alsoinvest at later stages. The problems are different in the early stages.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

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.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

www.paulgraham.com

APRIL 28, 2010

You give a startup money and they give you stock. Youllprobably get either preferred stock, which means stock with extrarights like getting your money back first in a sale, or convertibledebt, which means (on paper) youre lending the company money, andthe debt converts to stock at the next sufficiently big fundinground. [

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63