Startup Professionals Musings

JANUARY 29, 2018

Negotiate an upgrade from common shares to preferred stock. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead. Here is another case where work up front is required to make this happen.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

Startup Professionals Musings

FEBRUARY 8, 2019

You may start as an LLC but find that a potentially high-value investor insists on having preferred stock, which is only available with a C-Corp. For example, any LLC or S-Corp can elect to be treated for tax purposes as a sole proprietorship (Schedule C), partnership (Schedule K), or as an S-Corp (Form 2553).

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Startup Professionals Musings

SEPTEMBER 26, 2015

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. Investors typically demand preferred stock, to give themselves certain voting and liquidation privileges over later shareholders. Even founder’s shares are common stock.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Startup Professionals Musings

AUGUST 1, 2016

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Ask only for the money you can justify. Naïve expectations on funding terms and process.

Due Diligence 120

Due Diligence Intellectual Property Preferred Stock Seed Stage 120

Startup Professionals Musings

MAY 18, 2015

Facilitate an upgrade of founder’s common to founder’s preferred. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

MARCH 11, 2013

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. Legal requirements and tax requirements change as a business grows, so your entity needs to be reviewed regularly.

LLC 234

LLC Nevada Delaware Limited Liability Company 234

Startup Professionals Musings

MARCH 7, 2015

Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. The average valuation for angel investments is $2 million, which will get you $500,000 for 20 percent of your startup. Are you flexible on the terms of the investment?

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120