Steve Blank

APRIL 10, 2019

For most startup employee’s startup stock options are now a bad deal. Why Startups Offer Stock Options. In tech startups stock options were here almost from the beginning, first offered to the founders in 1957 at Fairchild Semiconductor , the first chip startup in Silicon Valley. Not everyone got the same amount of stock.

Stock Options 333

Stock Options Stock Vesting Common Stock 333

Both Sides of the Table

JULY 22, 2010

Things like “ participating preferred stock &# in legalese unsurprisingly never actually call out, “hey, this is the participating preferred language.&# We got a3x participating liquidation preference with interest (not participating with a 3x cap, but 3x participating. 4 * $4 million) and not $4 million.

Valuation 405

Valuation Liquidation Preference Pre-Money Valuation Term Sheet 405

Startup Professionals Musings

OCTOBER 7, 2022

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 304

Preferred Stock Exit Strategy Equity Angel Investor 304

YoungUpstarts

AUGUST 25, 2015

Owners of corporations also pay taxes when they are paid dividends or profit from sale of the stock, which is why it is common to say that corporations are “double-taxed.” Ownership of a corporation is measured in stock. Stocks are issued at the time the company is formed, and more can be issued over time. Verdict : It’s a tie!

LLC 100

LLC Technical Review Software Review Limited Liability Company 100

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. Make sure the government waits for a stock sale to collect taxes. Spread stock issuance over an earning period. In the U.S.,

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

DECEMBER 11, 2022

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 271

Due Diligence Intellectual Property Entrepreneur Preferred Stock 271

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. The downside is that people need to buy their stock. This is minutes 8-11.

Venture Capital 282

Venture Capital Term Sheet Valuation Stock Options 282

Startup Professionals Musings

NOVEMBER 30, 2015

A C-corporation is more complex and expensive, and is recommended only if you expect to pitch to professional investors who demand preferred stock, or to more than 100 potential shareholders. In the United States, this is a limited liability corporation, or LLC. Build your time line and momentum quickly after your business' start.

Intellectual Property 120

Intellectual Property Entrepreneur Preferred Stock Stealth 120

Up and Running

AUGUST 28, 2019

Agree upon how much of this business each of your leaders owns, and write that down on slips of paper called “stock certificates”. If you used an incorporation service, they might have sent you a nice binder with your bylaws template, stock certificates, and maybe even a nifty corporate seal embosser (neat!). Issue stock.

Delaware 83

Delaware Stock Nevada Technical Review 83

Startup Company Lawyer

AUGUST 31, 2012

” As a result, Ted introduced the Series Seed preferred stock documents as an alternative to convertible debt for early stage investments. Why convertible equity is better than preferred stock. The problem. Making it equity removes this issue.

Convertible Security 73

Convertible Security Equity Security Preferred Stock 73

Startup Professionals Musings

JANUARY 4, 2020

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?

Startup 337

Startup Preferred Stock Exit Strategy Equity 337

Startup Professionals Musings

MARCH 14, 2020

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 308

Due Diligence Intellectual Property Preferred Stock Seed Stage 308

ReadWriteStart

JUNE 1, 2020

The shares given out can either be common stocks or preferred stocks. ? Debt investment. Equity investment is the most popular and most talked-about avenue for startup funding. These investments are made instead of shares or equity in your startup. Debt investment would have a repayment timeline and incur interest rates.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Startup Professionals Musings

FEBRUARY 8, 2019

File founder stock election so no taxes are due until exit. Even though the initial stock has no value or market, it is imperative that you document the division of ownership immediately between co-founders commensurate with their investment, contribution, and role. Upgrade your legal business entity to meet growth needs.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Up and Running

DECEMBER 1, 2015

At the time, Facebook wasn’t the goliath it is today and so, Choe was given a couple of options: he could have $60,000 in cash, or stock (equal to the equivalent amount of the cash back then). If however you are giving a “normal employee” an incentive stock option plan (more on that later), that’s entirely different.

Equity 60

Equity Employee Stock Options Vesting 60

Agile VC

APRIL 17, 2011

Interesting to note that Hafner and English own common stock but also made meaningful investments in the Series A & B rounds. Notes: In an IPO preferred share classes are converted into common stock, and liquidation preferences and accumulated but unpaid dividends essentially go away. as of 12/31/09). Author howerl.

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

View from Seed

DECEMBER 4, 2014

Additionally, you should put whatever agreement you reach to paper , even if you have not yet incorporated or had your legal counsel draw up the founder stock paperwork. You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently.

Equity 315

Equity Founder Sweat Equity Cofounder 315

Gust

JUNE 7, 2014

5) Senior Preferred Stock and warrants. 6) Any preference multiple on (5). 7) Junior Preferred Stock and warrants. 8) Any preference multiple on (7). 9) Common Stock (including any Preferred that converted to Common, any exercised options, and all Founders stock) and Common stock warrants.

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

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

ithacaVC

APRIL 5, 2011

A cap table is a written record (in Excel, for example) of who owns stock in your company. It lists every owner out by amount owned, type of stock (common or preferred), and date purchased. For clarity, it is impossible to issue stock without putting a value on the company. I am a huge fan of simple cap tables.

Common Stock 45

Common Stock Stock Cap Table Preferred Stock 45

Agile VC

DECEMBER 4, 2014

Additionally, you should put whatever agreement you reach to paper, even if you have not yet incorporated or had your legal counsel draw up the founder stock paperwork. You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

YoungUpstarts

JUNE 26, 2020

I used to think a valuation was kind of like a stock price of a public company. Setting aside the issues of valuation of common stock vs. preferred stock, what I really didn’t understand was that a valuation is a set of expectations. I was wrong.

Finance 205

Finance Silicon Valley Valuation Startup 205

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

David Teten

MARCH 14, 2018

Typically they get cofounder common equity, in addition to the preferred stock that a conventional VC gets. Venture studios work as co-founders with a founding team, with the larger ones assigning dedicated internal teams for each startup idea (e.g., engineers, designers, business developers).

Private Equity 60

Private Equity Venture Capital Equity Cofounder 60

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. Why Can’t a Startup Issue Shares of Common Stock to Investors?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

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

Berkonomics

FEBRUARY 3, 2022

We say that you are growing an evergreen enterprise , one in which outside money is to be taken in the form of loans or royalty agreements, not shares of stock or ownership. Investors will not be happy and will usually react.

Liquidity Event 62

Liquidity Event Preferred Stock Dividend Equity 62

Both Sides of the Table

JULY 25, 2011

Founders don’t often think about “primary&# stock vs, “fully diluted&# stock in terms of voting rights. To this day I’m still surprised how few CEOs really understand the differences between 2x liquidation preference and a liquidation preference with a 2x cap. I never did.

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

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. (For more on working with startup lawyers, see Mark Suster’s classic post, How To Work With Lawyers At A Startup.).

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

Startup Company Lawyer

MARCH 14, 2010

To differentiate it from typical “Series A&# preferred stock, which comes with certain expectations with regard to rights. There is no real rule to what a particular series of preferred stock is called. The Series Seed Stock Purchase Agreement has fairly limited reps and warranties. Legal fees.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

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. Sometimes it takes a court case to unravel onerous terms.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

ithacaVC

APRIL 25, 2014

The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). The larger the preferred stock liquidation preference the larger the impact of participating preferred. Play with the investment numbers (increase them in column L).

Cap Table 79

Cap Table Preferred Stock Pre-Money Valuation Liquidation Preference 79

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

Agile VC

DECEMBER 4, 2014

Additionally, you should put whatever agreement you reach to paper, even if you have not yet incorporated or had your legal counsel draw up the founder stock paperwork. You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Steve Blank

OCTOBER 24, 2017

To turn your company’s stock into cash, you engaged a top-notch investment bank (Morgan Stanley, Goldman Sachs) and/or their Silicon Valley compatriots (Hambrecht & Quist, Montgomery Securities, Robertson Stephens). The founders along with all the other employees would vest their stock over 4 years (earning 1/48 a month).

Founder 245

Founder Technical Review CTO Hire IPO 245

ReadWriteStart

APRIL 7, 2011

The majority of financings was structured as preferred stock (69%), as opposed to convertible note financings (31%), and the vast majority of those (83%) had their conversion price capped. The median amount raised in preferred stock financings was $1.1 million and $600,000 in convertible note financings.

Preferred Stock 115

Preferred Stock Silicon Valley Seed Stage Venture Capital 115

Berkonomics

JULY 23, 2020

Does the board declare dividends upon the preferred stock invested in order to increase the amount paid out to the preferred – at the expense of the common – shareholders, which usually includes the founder(s)? Conflicts of interest with preferred investors. Investor notes vs. stock late in the game.

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62