Both Sides of the Table

JULY 29, 2010

Mark Jeffrey - Q: “Is it more traditional to do your ESOP (employee stock option plan) before or after your angel or Series A funding?&# I talked about the need to have a restricted stock plan for your earliest employees. You’re not screwing me – you’re screwing your fellow employees.

Venture Capital 282

Venture Capital Term Sheet Valuation Stock Options 282

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

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 Professionals Musings

FEBRUARY 8, 2019

Proper record keeping is especially important if you have employees and contractors, as you’ll need to manage W-2s, Form 1099s, employment agreements, attendance records, termination letters, and any settlement or ownership documents with former employees. Don’t overlook business tax filing requirements and dates.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Agile VC

APRIL 17, 2011

5) High Productivity: Kayak had 148 employees at the end of 2010. That means that Kayak generates roughly $1.15M in revenue for each employee which puts it in the same league as Google and Apple (both >$1M/head). One can infer valuations based on per share prices of preferred stock and oustanding common shares (~5.3M

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

David Teten

MARCH 14, 2018

Andreessen Horowitz’s compromise: they have a half-dozen “ board partners ” who serve on the boards of their portfolio companies, representing A16Z, but who are not full-time employees of A16Z. Typically they get cofounder common equity, in addition to the preferred stock that a conventional VC gets.

Private Equity 60

Private Equity Venture Capital Equity Cofounder 60

Gust

JUNE 7, 2014

So, here is the typical payout order, from first to last: 1) Salaries owed to employees. 5) Senior Preferred Stock and warrants. 6) Any preference multiple on (5). 7) Junior Preferred Stock and warrants. 8) Any preference multiple on (7). 2) Secured creditors. 3) Un-secured trade creditors.

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

Hunter Walker

SEPTEMBER 29, 2022

As more growth and crossover investors came into the startup ecosystem they were often eager to put capital to work and happy to consolidate their positions with common or preferred shares from early employees, founders and previous investors. We’re aligned with the founders and the rest of the cap table until we aren’t.

Venture Capital 122

Venture Capital Cap Table LP Equity 122

www.payne.org

SEPTEMBER 22, 2011

Startup Equity For Employees. 2 Stock Classes: Common and Preferred. 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.

Equity 56

Equity Employee Vesting Preferred Stock 56

Berkonomics

MARCH 8, 2018

The option price should be set by appraisal under IRS rule 409a, and certainly should be low enough to recognize that common stock options are not worth as much as preferred stock, given the many preferences of the latter. Expenses for travel are often reimbursed by the corporation.

Early Stage 102

Early Stage Vesting Stock Options Preferred Stock 102

View from Seed

DECEMBER 4, 2014

It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.

Equity 315

Equity Founder Sweat Equity Cofounder 315

Startup Company Lawyer

MARCH 12, 2009

C corps, LLCs, and S corps differ significantly in the areas of taxation, ownership, fundraising, governance and structure, and employee compensation. Any company that raises venture financing will need to be a C corp in order to issue preferred stock. Employee Compensation. such as incentive stock options.

LLC 61

LLC Stock Options Preferred Stock Stock 61

ReadWriteStart

JANUARY 28, 2022

These characteristics, comparable to those found in the fixed income market, can convert into common stock, call clauses, and other features. Warrants are a kind of equity that are often attached to a corporate bond issuance or preferred stock to make the transaction more appealing to investors. Equity for Employees.

Valuation 108

Valuation Equity Warrant Common Stock 108

Berkonomics

JANUARY 6, 2022

Most sophisticated investors will take either a promissory note or preferred stock, both of which come before founder or management stock in a sale or liquidation. The order of liquidation or payout. No-one complains if the sales price is ten times the investment since there is plenty to go around.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

Startup Professionals Musings

AUGUST 1, 2016

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Due diligence also normally involves onsite visits and employee discussions, so the entire team needs to be fully aware of expectations. Ask only for the money you can justify.

Due Diligence 120

Due Diligence Intellectual Property Preferred Stock Seed Stage 120

Agile VC

DECEMBER 4, 2014

It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

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

Startup Professionals Musings

MARCH 11, 2013

In addition, corporations have quarterly filing requirements, and even monthly ones, if you collect sales taxes and hire employees. For example, you and your partner may be perfectly happy with an LLC, but venture capital or Angel investors may insist on having “preferred” stock, forcing an upgrade to a C-Corp.

LLC 234

LLC Nevada Delaware Limited Liability Company 234

www.mattbartus.com

SEPTEMBER 24, 2011

People tend to underestimate how much record keeping is involved with managing employees and consultants, and this just adds an unacceptable extra burden. First, you’d probably want them to receive common stock, not preferred stock (which is the likely next round). link] Casey Allen. Matt: Fantastic posts.

Equity 40

Equity Vesting Silicon Valley Intellectual Property 40

Agile VC

DECEMBER 4, 2014

It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Startup Company Lawyer

FEBRUARY 21, 2010

Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless. If you can’t figure this out yourself, you should probably build a liquidation preference spreadsheet to model how liquidation preferences work depending on M&A transaction value.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

K9 Ventures

NOVEMBER 21, 2011

2) Fairness to other early employees in the company : This is a very critical and important point, that is often overlooked by founders. In most situations that I have come across, the founders usually have a significantly longer tenure working at the company than even the earliest employees and so a founders-only cut-off is acceptable.

Founder 87

Founder Common Stock Preferred Stock Stock 87

abovethecrowd.com

FEBRUARY 24, 2015

In a February 6th article in Business Insider , Allyson Shontell discovered that a mere four months after adding $150 million to a total of $330 million in invested capital, the founder and CEO disclosed to its employees that “we have spent $200 million and we have not proven out our business model.”

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

K9 Ventures

NOVEMBER 21, 2011

2) Fairness to other early employees in the company : This is a very critical and important point, that is often overlooked by founders. In most situations that I have come across, the founders usually have a significantly longer tenure working at the company than even the earliest employees and so a founders-only cut-off is acceptable.

Founder 84

Founder Common Stock Preferred Stock Stock 84

Berkonomics

OCTOBER 1, 2015

Most sophisticated investors will take either a promissory note or preferred stock, both of which come before founder or management stock in a sale or liquidation. Further, preferred stock holders can be recipient of accrued dividends in a sale or liquidation.

Dividend 48

Dividend Preferred Stock IRR Participating Preferred 48

K9 Ventures

MAY 14, 2011

They are generally high net worth (accredited) individuals who have done well in their career, either as entrepreneurs or as executives and early employees at some of the companies that have done well (in the Valley that usually means Paypal, Google, Facebook etc). Common Stock. Convertible Note or Preferred Stock.

Preferred Stock 125

Preferred Stock Seed Stage Incubator Early Stage 125

Both Sides of the Table

MARCH 21, 2010

A “warrant&# is a right, but not an obligation for a company to buy stock in your company at a future date and at a pre-agreed price. Think of it as similar to an employee stock option. So let’s think first about employee options and how they can be similar to company warrants. Should You Offer Them?

Warrant 298

Warrant Dilution Startup Stock Options 298

Gust

JULY 18, 2012

For startups, it’s also important to understand that Board approval is required for a corporation to issue any new shares of stock or other equity instruments such as stock options. For that reason, approval of the latest employee stock option grants recommended by the CEO is a routine action item at most startup Board meetings.

Stock Options 188

Stock Options SEC Stock Government 188

Ben's Blog

JULY 16, 2013

First, if you did not understand how radically the fundraising environment might change, then there is no chance that your employees would have understood it. In fact, if you are like most companies, your managers probably implied to your employees that your stock price would only rise as long as you were private. Silly them.

Down Round 78

Down Round Marketing Preferred Stock Post-Money Valuation 78

Board Effect

MAY 10, 2019

There’s the owner—maybe a partner or two—but unless employees are offered equity from the get-go, there’s typically not a whole lot of dilution. It’s not unusual for owners to offer equity to early employees and advisors, both as a motivator and a form of compensation before the business turns a profit. Why do cap tables matter?

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Growthink Blog

APRIL 7, 2010

The name "Series A" refers to the class of preferred stock that you sell to investors in return for their cash. Your Series A round is typically the first series of stock issued after common stock (which is typically issued and/or sold to company founders, employees, friends and family, and initial angel investors).

Angel Investor 54

Angel Investor Preferred Stock Venture Capital Common Stock 54

Berkonomics

OCTOBER 26, 2010

The option price should be set by appraisal under IRS rule 409a, and certainly should be low enough to recognize that common stock options are not worth as much as preferred stock, given the many preferences of the latter. Expenses for travel are often reimbursed by the corporation.

Stock Options 66

Stock Options Early Stage Stock Vesting 66

Scott Edward Walker

NOVEMBER 26, 2017

From a practical perspective, this means getting actively involved in your local tech community, regularly attending industry events and conferences, writing blog posts/articles, integrating yourself into communities on social networks and, of course, doing outstanding work as an employee (to develop a great reputation).

Term Sheet 63

Term Sheet San Francisco Founder Investment Bankers 63

ithacaVC

FEBRUARY 23, 2011

As the investors’ aggregate liquidation preference (ALP) increases typically the need for a MCOP also increases. The ALP is the total amount of $ that preferred stock holders are owed on a sale of the company under their liquidation preferences. A few key points to consider: 1.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

Ben's Blog

JULY 16, 2013

First, if you did not understand how radically the fundraising environment might change, then there is no chance that your employees would have understood it. In fact, if you are like most companies, your managers probably implied to your employees that your stock price would only rise as long as you were private. Silly them.

Marketing 46

Marketing Preferred Stock Post-Money Valuation Down Round 46

ithacaVC

JUNE 20, 2011

You need (or think you need) a stock option plan: granting stock options (and other forms of equity compensation to employees like restricted stock) should be done under a written equity incentive plan. And each award to a given employee requires a separate grant agreement laying out the terms of the grant.

Stock Options 58

Stock Options Vesting Subscription Agreement Founder Vesting 58

Startup Company Lawyer

JULY 20, 2009

Once again, please keep in mind that the documents from typical online incorporation services do not contain IP assignment provisions in connection with the purchase of founders stock or separate IP assignment documents. Hiring employees or third party contractors.

IP 67

IP Stock Options Preferred Stock Capital Gains 67