Agile VC

DECEMBER 4, 2014

As a result, one of the trickier things co-founders tackle is determining the equity split amongst the founding group of individuals. Across both the startups I’ve personally been involved in (PayPal and LinkedIn) and the startups in which I’ve been an investor, I’ve seen a broad range of co-founder equity splits.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Both Sides of the Table

AUGUST 30, 2010

Convertible debt is an investment that “converts&# into equity in the future usually at a discount to your next funding round price and sometimes has a “cap&# (maximum price). a priced/valued preferred stock financing)?&#. prefer equity to convertible debt): If you’re an early stage investor (e.g.

Equity 319

Equity Early Stage Angel Investor Valuation 319

www.mattbartus.com

SEPTEMBER 24, 2011

Equity for Consultants – Keep it Simple! posted Feb 3 in Equity , People issues. We will grant him/her X% fully diluted shares up front, and every time he/she makes an introduction, he/she will vest in 100 shares.” Is it atypical for founders to vest more than 25% of their equity after one year? Categories.

Equity 40

Equity Vesting Silicon Valley Intellectual Property 40

Startup Professionals Musings

SEPTEMBER 26, 2015

Investors, on the other hand, look at the money figure, and even the equity, as the easy part. This is a loan with an option to convert to equity at a later date. For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. Type of stock assigned to the investor.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Startup Professionals Musings

JANUARY 29, 2018

Even though initial stock has no market value today, it is extremely valuable in dividing equity ownership between co-founders, investors, and early partners. Otherwise, later stock value growth may be lost or used against you before you can capitalize on it. Buying back stock on the open market may cost a huge premium.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

Startup Company Lawyer

MARCH 14, 2010

After the recent announcement of the Series Seed Financing documents by Marc Andreesen, Brad Feld points out that there are now four sets of “open source&# equity seed financing documents: TechStars Model Seed Funding Documents (by Cooley). Y Combinator Series AA Equity Financing Documents (by WSGR). under $500K).

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Scott Edward Walker

JUNE 9, 2019

For example, if an investor owns 20% of the equity of a startup on a fully-diluted basis following the closing of a Series A round, it will have the right to purchase 20% of the shares of the preferred stock issued in the subsequent Series B round. This is a huge red flag and founders should push back very hard.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

Berkonomics

MARCH 8, 2018

Give one percent equity to each outside board member vesting over four years of service. Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service.

Early Stage 102

Early Stage Vesting Stock Options Preferred Stock 102

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

Startup Professionals Musings

MAY 18, 2015

This is called stock dilution control. While new equity owners always have to get it from someone, actual re-allocation of existing shares should be based on a formula to maximize the value of your remaining founder shares. Facilitate an upgrade of founder’s common to founder’s preferred.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

MARCH 7, 2015

Ancillary objectives, like retiring existing debt, buying a building or paying salaries to people with equity ownership will not get traction. How much equity ownership are you willing to offer? Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection.

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120

Berkonomics

DECEMBER 20, 2018

Since I am a proponent of using equity as a tool and he is so much opposed, this week it is his turn to make the case. Do I understand the royalty replaces the need for equity investors ? What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity?

IP 54

IP Intellectual Property Investment Bankers Product 54

Berkonomics

DECEMBER 20, 2018

Since I am a proponent of using equity as a tool and he is so much opposed, this week it is his turn to make the case. Do I understand the royalty replaces the need for equity investors ? What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity?

IP 48

IP Intellectual Property Investment Bankers Product 48

Both Sides of the Table

SEPTEMBER 5, 2012

This time by the efforts of Adeo Ressi to introduce a new kind of structure called “ convertible equity.” My initial reaction to Adeo when we spoke was that while it may have solved some issues (debt versus equity) it didn’t solve the ones that I’ve been warning entrepreneurs about most loudly.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Scott Edward Walker

APRIL 9, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? 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?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

ithacaVC

JUNE 29, 2018

Our portfolio companies routinely adopt carve out plans when the founders/employees equity values are not likely to provide enough incentive to get a company to an exit. This typically results when the company has raised a lot of money and the preferred stock liquidation preference would absorb an out sized portion of the exit proceeds.

Management 40

Management Liquidation Preference Preferred Stock Dilution 40

Both Sides of the Table

MARCH 21, 2010

I’ve heard the following so many times that it still makes me scratch my head, “if those guys are going to get rich off of our backs then we’re going to look like fools if we don’t have equity.&#. I’ve already made clear that I think raising equity from “strategic money&# is an oxymoron.

Warrant 298

Warrant Dilution Startup Stock Options 298

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

ithacaVC

DECEMBER 13, 2013

VCs in particular typically insist on a slug of available options counting in the pre-money share total as they do not want to be diluted later by the issuance of those options. On a fully diluted pre-money basis, that would mean the option pool represents 14.5% (356,758/2,456,758) of the cap table. times more equity than Founder X.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

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.   Note that this applies only to earl stage Series A-type equity financings and assumes no cash dividends are paid to investors.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

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 maturity conversion : into Series AA Preferred Stock based on a $5M valuation.

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

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

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. As the investors’ aggregate liquidation preference (ALP) increases typically the need for a MCOP also increases. A few key points to consider: 1.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

Berkonomics

OCTOBER 26, 2010

Give one percent equity to each outside board member vesting over four years of service. Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service.

Stock Options 66

Stock Options Early Stage Stock Vesting 66

Gust

MAY 24, 2012

As a quick review, most startups begin life as corporations with a single class of equity securities, referred to as Common Stock , issued to founders, employees, and outside service providers. Options and warrants, when issued, are also typically exercisable for shares of Common Stock.

IPO 159

IPO Equity Common Stock Stock 159

Both Sides of the Table

APRIL 14, 2010

In straight preferences the investors only get this money in a “downside&# scenario as protection that they get their money back if your company isn’t successful. The list goes on. Legacy deals have “hair.&#.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

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

K9 Ventures

NOVEMBER 21, 2011

2) The company can repurchase the founders’ Common Stock at the fair market value (FMV) price of the Common Stock, sell an equivalent amount of Preferred Stock, and then give the founder a bonus for the price differential between the Preferred price and the Common price.

Founder 87

Founder Common Stock Preferred Stock Stock 87

K9 Ventures

NOVEMBER 21, 2011

2) The company can repurchase the founders’ Common Stock at the fair market value (FMV) price of the Common Stock, sell an equivalent amount of Preferred Stock, and then give the founder a bonus for the price differential between the Preferred price and the Common price.

Founder 84

Founder Common Stock Preferred Stock Stock 84

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. Convertible notes. Total share ownership.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

www.mattbartus.com

DECEMBER 9, 2012

If you are a company that is fundraising, keep in mind that there are a few different levers you can pull to change the amount of dilution that the founders will experience. Let’s say you receive a term sheet for a $1 million investment at a $3 million fully diluted pre-money valuation, and you’re kind of disappointed.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

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. There needs to be enough equity to go around for founders, early investors, later investors, and employees.

Pre-Money Valuation 28

Pre-Money Valuation Angel Investor Angel Groups Valuation 28

Board Effect

MAY 10, 2019

Such metrics can include an investor’s liquidation preference, option exercise windows and expiry dates, and shareholders’ fully diluted ownership percentages. It’s important to note that the structure and contents of a cap table are unique to how a company has chosen to divide its equity. Why do cap tables matter?

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Startup Company Lawyer

JANUARY 9, 2011

One super-angel I talked to told me that while a year ago these caps “approximated what I’d pay in equity” that they’re now “33% higher than what I’d normally agree to pay now.”. A logical alternative to convertible debt is a priced Series A preferred stock financing. Is a priced Series A financing a valid alternative?

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

www.paulgraham.com

APRIL 28, 2010

Whatkind of anti-dilution protection do they want? It costs you a little more equity, but being able to play the two firms off each other (as well as ask one if the other is being out of line) is invaluable. Angels who only invest occasionally may not themselves know whatterms they want. They just want to invest in this startup.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

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