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.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

Startup Professionals Musings

MAY 18, 2015

Make sure the government waits for a stock sale to collect taxes. This is called stock dilution control. Facilitate an upgrade of founder’s common to founder’s preferred. This allows the entrepreneur more influence in controlling dilution of his or her shares, investment terms and acquisition decisions.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Berkonomics

DECEMBER 20, 2018

These are your candidates, because they are companies already absorbing much or all the marketing expense necessary to make sales of your invention. What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity? So, there you have it.

IP 54

IP Intellectual Property Investment Bankers Product 54

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. Every share option you allocate to an employee is dilution both you and your investors face so they shouldn’t be allocated lightly. million in sales. million in sales (e.g.

Warrant 298

Warrant Dilution Startup Stock Options 298

Berkonomics

DECEMBER 20, 2018

These are your candidates, because they are companies already absorbing much or all the marketing expense necessary to make sales of your invention. What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity? So, there you have it.

IP 48

IP Intellectual Property Investment Bankers Product 48

Scott Edward Walker

APRIL 9, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? In the context of a seed financing, the debt typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing. and (iii) what are the advantages of issuing convertible notes?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

The Startup Lawyer

MARCH 1, 2010

The Amended and Restated Certificate of Incorporation includes the typical provisions you might find in a VC deal, less (i) preferential dividends, (ii) redemption rights, and (iii) price based anti-dilution. 2) Series Seed Stock Preferred Stock Purchase Agreement. 3) Investors’ Rights Agreement. 4) Term Sheet.

Preferred Stock 79

Preferred Stock Term Sheet Redemption Registration Rights 79

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. It has nowhere near the same dilutive effects as a full ratchet except in extreme edge cases. But my $500k, while only buying 10% of the company (and now diluted down to 7.5%

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Tim Keane

JANUARY 12, 2010

It also assumes the entire value of the investment is captured for investors at a sale of the company in the time specified in the term-sheet. This results in a range of sale prices; in this example from $118.6MM to $21MM.   In most cases, the preferred dividend is paid before any dividend is paid to the common.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

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. I have posted on this previously.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

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. But when should the MCOP be adopted?

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

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

Startup Company Lawyer

JANUARY 31, 2011

Optional maturity conversion : into Series AA Preferred Stock based on a $5M valuation. Please note that these are generally the terms of the Series AA Preferred Stock financing documents that Y Combinator previously published.).

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

Berkonomics

OCTOBER 26, 2010

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. Email readers continue here.] For lifestyle companies or later stage companies, board members should be paid on a per-meeting basis in cash.

Stock Options 66

Stock Options Early Stage Stock Vesting 66

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

The Startup Lawyer

MARCH 1, 2010

The Amended and Restated Certificate of Incorporation includes the typical provisions you might find in a VC deal, less (i) preferential dividends, (ii) redemption rights, and (iii) price based anti-dilution. 2) Series Seed Stock Preferred Stock Purchase Agreement. 3) Investors’ Rights Agreement. 4) Term Sheet.

Preferred Stock 40

Preferred Stock Term Sheet Redemption Registration Rights 40

Steve Blank

APRIL 10, 2019

You’ll still own your stock, and you can leave and join another startup. There are four problems: First, as the company raises more money, the value of your initial stock option grant gets diluted by the new money in. Today, if you’re an employee you’re now are at the bottom of the stock preference pile.

Stock Options 333

Stock Options Stock Vesting Common Stock 333

Startup Company Lawyer

JANUARY 11, 2010

For example, typical provisions in a company-friendly pre-Series A convertible bridge note financing may include a 20% conversion discount from the Series A price and a 2x return on a sale of company. If the investor had invested $500K in a Series A Preferred Stock at a $4.5M Assume the angel investor invests $500K.

Angel Investor 39

Angel Investor Valuation Bridge Financing Preferred Stock 39

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

Whatkind of anti-dilution protection do they want? For example, VCs generally write it into the deal thatin any sale, they get their investment back first. Some VCsnow require that in any sale they get 4x their investment backbefore the common stock holders (that is, you) get anything, butthis is an abuse that should be resisted.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

Startup Company Lawyer

JANUARY 9, 2011

A logical alternative to convertible debt is a priced Series A preferred stock financing. Mark Suster does a good job analyzing whether convertible debt is preferable to equity , and concludes that convertible debt is better. This leads me to believe that there is a mini-bubble in the early stage financing universe.

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