VC Cafe

OCTOBER 23, 2010

B ack in March, Andreessen Horowitz and Fenwick & West, LLP published a series of documents that would help structure early stage investments in startups. Fred Wilson , Paul Graham and Seth Levine all agree that as an entrepreneur one would prefer uncapped convertible debt to equity, but investors typically won’t go for it.

Early Stage 80

Early Stage Term Sheet Preferred Stock Equity 80

Berkonomics

MAY 22, 2014

The sale of equity in private companies is regulated by the Securities Act of 1933, which requires that the company either register with the SEC or meet one of several exemptions (Regulation D). Bill Payne has been actively involved in angel investing since 1980, funding over 50 companies and mentoring over 100 more.

Early Stage 79

Early Stage Accredited Investor SEC Private Placement 79

Gust

JUNE 7, 2014

In many, if not most, seed and early stage funding scenarios, the investments are structured in LIFO order: Last In, First Out. 5) Senior Preferred Stock and warrants. 6) Any preference multiple on (5). 7) Junior Preferred Stock and warrants. 8) Any preference multiple on (7).

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

Berkonomics

OCTOBER 26, 2010

Give one percent equity to each outside board member vesting over four years of service. Many early stage CEOs and board members have asked for some guidance regarding pay and time commitments for board members. Here is my best advice, based upon many boards and many years.

Stock Options 66

Stock Options Early Stage Stock Vesting 66

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

Growthink Blog

MAY 10, 2012

When seeking equity investments, the source of capital is, for the most part, tied to the stage of capital being raised. You see, equity capital is raised in stages or rounds. The five main stages include the following: 1. Early Stage Investment (Series A & B) 4. Pre-Seed Funding 2.

Equity 88

Equity Mezzanine Later Stage Venture Capital 88

Gust

SEPTEMBER 29, 2011

For a traditional VC financing round structured as a sale of preferred stock, the best resources I can recommend are the Term Sheet Series by Brad Feld and Jason Mendelson and Startup Company Lawyer by Yokum Taku. Others have discussed in detail the pros and cons of convertible debt vs. seed equity rounds.

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

www.payne.org

SEPTEMBER 22, 2011

Startup Equity For Employees. 2 Stock Classes: Common and Preferred. 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. Your offer will almost surely be for common stock.

Equity 56

Equity Employee Vesting Preferred Stock 56

Gust

OCTOBER 5, 2011

Last week , we gave some attention to the “why” behind convertible note financing for early stage startups. Moreover, assuming an eligible equity financing takes place before the maturity date, the interest isn’t paid in cash, but rather is added to the principal amount of the note before converting it to equity.

Finance 79

Finance Preferred Stock Term Sheet Early Stage 79

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

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? 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 ?

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? 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 ?

IP 48

IP Intellectual Property Investment Bankers Product 48

K9 Ventures

MAY 14, 2011

In my view the terminology being used for early stage investors by the press and the media is not as clear as it should be. I’ve talked about this on several occasions when I’ve been at conference and on panels, but I figured it would make sense to do a post explaining my taxonomy of the early-stage investing world.

Preferred Stock 125

Preferred Stock Seed Stage Incubator Early Stage 125

Feld Thoughts

SEPTEMBER 27, 2011

In today’s installment of our convertible debt series, we cover a specific case where the company is acquired before the debt converts into equity. In the case of an early-stage startup that hasn’t issued preferred stock yet, the debt converts into stock of the acquiring company (if it’s a stock deal) at a valuation subject to a cap.

Conversion 96

Conversion Sales Later Stage Preferred Stock 96

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

ReadWriteStart

JANUARY 28, 2022

With the rise of startups and growing businesses , it has become more critical for investors to have a thorough understanding of equity to be aware of all of the advantages they are receiving from the companies they have invested in. What is Company Equity? Types of equity. Common stock. Preferred shares.

Valuation 108

Valuation Equity Warrant Common Stock 108

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

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

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

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

Hunter Walker

SEPTEMBER 29, 2022

Starting a venture capital blog post with 1970s country music lyrics is pretty uncommon, but so is writing about when and why an investor might choose to sell equity before the company exits. And finally, a more robust (but still somewhat opaque) secondary market emerged for transacting equity among parties. You might think, “Hunter!

Venture Capital 122

Venture Capital Cap Table LP Equity 122

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

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. Valuation at this stage is clearly much more art than science, but I subscribe to the splitting up the pie school of thought.

Pre-Money Valuation 28

Pre-Money Valuation Angel Investor Angel Groups Valuation 28

Tim Keane

APRIL 12, 2006

Fewer investors will take common stock in early stage transactions. Preferred Stock is the most usual form of investment today. The percentage owned by the entrepreneur after the investment has been made is the “sweat equity” that represents the work the entrepreneur has done to get to this point.

Entrepreneur 60

Entrepreneur Valuation Sweat Equity Common Stock 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.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

Up and Running

MAY 23, 2016

He says, “Spending a few thousand on a domain could make a big difference long term, and give you the credibility and advantage over the competition, especially in the very beginning and early stages of the business.”. Delaware law gives preferred stock investors of a corporation certain voting rights and control over the corporation.

Software Review 74

Software Review Software Delaware Forecast 74

Gust

OCTOBER 3, 2011

Once in, this money stays in, and is part of what makes up your Founder’s Equity (along with your work and your intellectual property.). will get angel money; 0.25% will get early stage VC money; and probably 0.025% will make it to later stage VCs. From +/- $1.5m

Finance 70

Finance Venture Capital Intellectual Property Early Stage 70

www.paulgraham.com

APRIL 28, 2010

4 ] Seed Funding Firms Seed firms are like angels in that they invest relatively smallamounts at early stages, but like VCs in that theyre companiesthat do it as a business, rather than individuals making occasionalinvestments on the side. Angels and even VC firms occasionally do this, but they alsoinvest at later stages.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

techcrunch.com

SEPTEMBER 2, 2012

Convertible Equity, A Better Alternative To Convertible Debt? There has been no shortage of controversy and criticism around the convertible note, a popular investing vehicle that’s used by seed stage and angel investors. Ressi estimates that the debt note now accounts for over 50% of all angel and early stage deals.

Equity 87

Equity San Francisco Technical Review Angel Investor 87

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

www.vccafe.com

MARCH 11, 2013

VC Cafe covers early stage Israeli and European tech & mobile startups. YCombinator Series AA Equity Financing Documents. Seed Stage Valuation Guide. Founder Equity Issues. Venture Hacks equity section. Legal, Equity, etc. Venture Capital Cafe > Startup Resources (Updated Mar 2013).

Software Review 53

Software Review Technical Review Startup 53