View from Seed

DECEMBER 4, 2014

Editor’s note: Understanding how to divide founder equity at a startup can be tricky, even to the point of reaching emotional riffs between founders. Below, Lee Hower offers advice for approaching these equity discussions objectively and properly. Sometimes co-founders put off the equity split question for some time.

Equity 315

Equity Founder Sweat Equity Cofounder 315

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 255

Cofounder Equity Founder Sweat Equity 255

Startup Professionals Musings

JANUARY 15, 2021

When an entrepreneur first incorporates a business, they may find themselves the proud owner of 10 million shares of common stock, commonly called founder’s shares. Startup owners need to assume a three to five year wait for a liquidity event, such as acquisition or going public, before they can cash out. In the U.S.,

Vesting 298

Vesting Dilution Stock Founder Vesting 298

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

I’ve written about the topic of convertible debt at length before specifically about how angels & entrepreneurs should think about pricing. 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).

Equity 319

Equity Early Stage Angel Investor Valuation 319

Startup Professionals Musings

SEPTEMBER 26, 2015

Most entrepreneurs looking for an investor can tell you how much money they need, but few have given much thought to what they are willing to give up for it. 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.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

David Teten

AUGUST 19, 2019

I’ve been a traditional equity VC for 8 years, and I’m now researching new business models in venture capital. Though RBI will displace some traditional equity VC, its much bigger impact will be to expand the pool of capital available for early-stage entrepreneurs. . So what is Revenue Based Investing?

Revenue 60

Revenue Term Sheet Founder Technical Review 60

Startup Professionals Musings

JANUARY 29, 2018

It’s great motivation for every entrepreneur to get that value up quickly. Unfortunately, in my years since as a small business advisor, I have seen too many founders squander this asset through a lack of understanding of some basic legal and operational issues, or by handing out nominally “free” stock to the wrong people at the wrong time.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

Startup Professionals Musings

MAY 18, 2015

When an entrepreneur first incorporates his or her business, he or she may find him or herself the proud owner of 10 million shares of common stock, commonly called founder’s shares. Startup owners need to assume a three to five year wait for a liquidity event, such as acquisition or going public, before they can cash out.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

The Next Web

JUNE 17, 2015

Giving up equity in your business, as an alternative to paying cash, often sounds like a great idea to cash-starved startups. But, giving up equity in your business is often a very big decision, and can come at a long-term price, both financially and operationally. For example, let’s stay your startup is worth $1,000,000.

Equity 60

Equity Valuation Preferred Stock Common Stock 60

Gust

SEPTEMBER 29, 2011

The most successful serial entrepreneurs in the world may found three or four, perhaps even eight or ten venture-backed startups over the course of their careers. For more on working with startup lawyers, see Mark Suster’s classic post, How To Work With Lawyers At A Startup.). Knowledge is power.

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

Startup Professionals Musings

MARCH 7, 2015

One of the big questions that every entrepreneur struggles with is how much funding they should request from investors in the first round. 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?

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120

Scott Edward Walker

JUNE 9, 2019

Accordingly, I thought it would be helpful for founders to discuss these rights and to point out the problems they create for startups. For example, an investor that agrees to purchase 20% of the equity in a Series A round requests the right to purchase up to 50% of the subsequent Series B round. Pro Rata Rights.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

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

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 79

Early Stage Term Sheet Preferred Stock Equity 79

Both Sides of the Table

MARCH 21, 2010

This is part of my ongoing series on Startup Advice. As startup entrepreneurs we all want to work with them because having their name as reference clients makes it so much easier for marketing, PR, selling to other customers, fund raising and even recruiting. Make the warrants for common stock and not preferred stock.

Warrant 298

Warrant Dilution Startup Stock Options 298

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. Mezzanine Financing Most companies that raise equity capital and are eventually acquired or go public receive multiple rounds of financing first.

Equity 88

Equity Mezzanine Later Stage Venture Capital 88

Agile VC

APRIL 17, 2011

AGILEVC My idle thoughts on tech startups. Obviously most of these employees are working hard primarily for equity upside compensation, but Kayak’s personnel costs are roughly $200K/head so the company is highly productive on a per employee basis. Im a former Silicon Valley entrepreneur turned East Coast VC. Author howerl.

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

Business Plan Blog

NOVEMBER 13, 2013

Most startup founders do not have enough capital to launch their companies and need to raise money at some point. Individual investors who provide financial funding to startups are called ‘Angel Investors.’ Among the most common methods of funding used by startups when raising seed capital is “Convertible Debt Financing.”

Finance 93

Finance Accredited Investor Angel Investor Seed Capital 93

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

APRIL 9, 2012

Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook. ii) why are convertible notes issued instead of shares of common or preferred stock? What is a Convertible Note?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Tim Keane

JANUARY 12, 2010

Startups and angels: Along the way to success. Please see later version of this post on May 16, 2010 Entrepreneurs are often not experts in the area of term-sheet negotiations and all of the surrounding issues.   Investors sometimes “present” the terms they’d like and expect the entrepreneurs to react.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Gust

OCTOBER 5, 2011

Last week , we gave some attention to the “why” behind convertible note financing for early stage startups. Going back to Part I , recall that although a convertible note is technically a loan made to the startup, in practice these loans are rarely expected to be repaid. These deal terms are simple but significant.

Finance 79

Finance Preferred Stock Term Sheet Early Stage 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

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). I have yet to read a PPM written for a startup company that meets the parameters we angels generally establish for funding new ventures.

Early Stage 79

Early Stage Accredited Investor SEC Private Placement 79

Gust

OCTOBER 21, 2011

This week we move on to something near and dear to the hearts of entrepreneurs and investors alike: The exit, more formally known as a “ liquidity event.” Entrepreneurs generally don’t ask for this kind of language, but most sophisticated investors will insist on it in one form or another.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

K9 Ventures

MAY 14, 2011

This is probably the very first group that an entrepreneur who is starting out may approach for some funding for his or her idea. The incubators invest usually for an equity stake and buy equity at a extremely low valuation (for example, 7% for $15,000, which implies a pre-money valuation of less than $200,000).

Preferred Stock 125

Preferred Stock Seed Stage Incubator Early Stage 125

Both Sides of the Table

APRIL 14, 2010

It’s meant to be a bit provocative but the reality is that I give this advice to entrepreneurs all the the time and I usually leave the “e&# off of the end. I normally offer this advice in the capacity of really wanting to help entrepreneurs so please bear with me. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Gust

JULY 18, 2012

Yet I’ve rarely seen entrepreneurs more fired up than when recounting war stories of startups whose founders had control of the company wrested from them, were forced to take financing or compensation deals on outrageously onerous terms , or worst of all, fired from their own companies.

Stock Options 188

Stock Options SEC Stock Government 188

Gust

MAY 24, 2012

Yet I’m skeptical that a widespread shift will occur anytime soon, and for reasons discussed below, as much as I admire and advocate for talented entrepreneurs, I believe it would be a losing proposition for nearly all involved. Options and warrants, when issued, are also typically exercisable for shares of Common Stock.

IPO 159

IPO Equity Common Stock Stock 159

Austin Startup

OCTOBER 27, 2017

Good entrepreneurs and advisors know that. Out of State VCs When you’re not CEO Material Preferred Stock v. Common Stock Ask the Users Because we’re known as Startup/VC lawyers who don’t represent VCs (just companies), I often get asked about my thoughts on “founder friendliness.” Background reading: Local v.

Founder 48

Founder Cap Table Preferred Stock Common Stock 48

Lightspeed Venture Partners

OCTOBER 1, 2012

Price is always a consideration in investing, but particularly so if the entrepreneurs have shown an interest in an early exit. The entrepreneur was seeking $100k for 20% of the company. Barbara noted that the entrepreneur had been unlucky, and that luck doesn’t change, which is why he should sell the company to them.

Pre-Money Valuation 158

Pre-Money Valuation Valuation Participating Preferred Preferred Stock 158

The Startup Lawyer

MARCH 11, 2010

A variety of model startup seed funding docs have been released in the past year or so: TechStars Series AA Preferred , YCombinator Series AA Preferred , and TheFunded Founder Institute’s Plain Preferred. When an issue like this occurs at your startup, you’ll be glad your documents are “complicated.&#.

Delaware 49

Delaware Hockey Stick Preferred Stock Open Source 49

Startup Company Lawyer

JULY 20, 2009

Founders of startup companies often wait to incorporate a company until they are confident that their concept is viable or fundable. At some point, however, an entrepreneur will need to formally incorporate a company. Issuing stock options. Several reasons exist for taking the step to incorporate. Obtaining visas.

IP 67

IP Stock Options Preferred Stock Capital Gains 67

The Startup Lawyer

MARCH 11, 2010

A variety of model startup seed funding docs have been released in the past year or so: TechStars Series AA Preferred , YCombinator Series AA Preferred , and TheFunded Founder Institute’s Plain Preferred. When an issue like this occurs at your startup, you’ll be glad your documents are “complicated.&#.

Delaware 45

Delaware Hockey Stick Preferred Stock Open Source 45

Tim Keane

APRIL 12, 2006

Startups and angels: Along the way to success. Ten questions the entrepreneur should ask the (prospective) investor. If they’re making it as part of a group that the entrepreneur likes, fine. Preferred Stock is the most usual form of investment today. By Tim Keane, Angel Investor, Golden Angels Investors, LLC.

Entrepreneur 60

Entrepreneur Valuation Sweat Equity Common Stock 60

Professor VC

DECEMBER 26, 2012

A good place to start for data is CBInsights' Seed Investing Report- Startup Orphans and the Series A Crunch. If you are entrepreneur that isn't in a position for Series A, find other financing sources and/or figure out how to bootstrap to cash flow breakeven or in Jason's words "put on your big boy undies". in seed financing?

Finance 48

Finance Angel Investor Private Equity Preferred Stock 48