Startup Professionals Musings

NOVEMBER 30, 2015

Let me assure you, there is no absolute right or wrong, but there is real value in doing things in a sequence that minimizes the risks, optimizes your efforts and generates the best “first impression” on potential investors. Aspiring entrepreneurs often ask me what to do first when starting a business.

Intellectual Property 120

Intellectual Property Entrepreneur Preferred Stock Stealth 120

Both Sides of the Table

JULY 22, 2010

Back in 1999 when I first raised venture capital I had zero knowledge of what a fair term sheet looked like or how to value my company. More likely what you’ll see if you have an aggressive term sheet is “participating preferred&# stock. It was accept the terms or go into bankruptcy so we took the money.

Valuation 405

Valuation Liquidation Preference Pre-Money Valuation Term Sheet 405

Startup Professionals Musings

JANUARY 4, 2020

Strategies that I do not recommend include opening the discussion with a big number, hoping to make a more reasonable value feel like a good deal, or starting with a tiny number, hoping to entice interest from everyone. This is all about setting a credible current value on your startup -- not future value.

Startup 337

Startup Preferred Stock Exit Strategy Equity 337

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. Otherwise, people with no ongoing effort (“free riders”) will own the value growth that you are adding after their departure.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

MARCH 14, 2020

Investors expect a good value proposition in every pitch. Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Non-credible funding request or unreasonable valuation. Investors are looking to buy a chunk of the business, not the product.

Due Diligence 308

Due Diligence Intellectual Property Preferred Stock Seed Stage 308

Gust

MAY 24, 2012

Options and warrants, when issued, are also typically exercisable for shares of Common Stock. By contrast, venture capital and angel investments normally take the form of Preferred Stock with rights and preferences set forth in the company’s Certificate of Incorporation and other governance documents.

IPO 159

IPO Equity Common Stock Stock 159

Steve Blank

APRIL 26, 2022

Some even insisted that all prior preferred stock had to be converted to common stock. A cram down is different than a down round.

Cram Down 404

Cram Down Founder Venture Capital Recapitalization 404

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

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. Furthermore, there are various forms of equity, such as preferred stock, common stock, and convertible notes, which influence the present and potential future investors.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

ReadWriteStart

JUNE 1, 2020

The shares given out can either be common stocks or preferred stocks. ? Debt investment. If you remember, Flipkart was valued at 15 Billion dollars in June 2015, but Morgan Stanley slashed its valuation to 5.37 Equity investment is the most popular and most talked-about avenue for startup funding.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Startup Professionals Musings

FEBRUARY 8, 2019

File an 83(b) election with the IRS within 30 days of founding the company, while the market value of your startup is essentially zero. 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.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Up and Running

AUGUST 28, 2019

If you feel there are a couple hundred dollars of value to getting help, go for it, and know that thousands of people make the same choice every month. . The other aspect of the stocks you issue is the dollar value of each share you issue, known as par value. If it seems simple enough, go ahead and file.

Delaware 83

Delaware Stock Nevada Technical Review 83

David Teten

MARCH 14, 2018

The job of a VC is to invest in unprofitable businesses in anticipation of creating long term value. Typically they get cofounder common equity, in addition to the preferred stock that a conventional VC gets. engineers, designers, business developers). Prehype , Rocket Internet , and numerous others.

Private Equity 60

Private Equity Venture Capital Equity Cofounder 60

Andrew Payne

JUNE 5, 2010

Individual stock investing can be divided into “growth” & “value” strategies. Value investors try to find deals: companies that are trading below their intrinsic value. The value or “deal”-focused VCs are a drag. They want investments that can be run-away successes.

Preferred Stock 60

Preferred Stock Stock Startup Portfolio 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. Friends and family are also often issued shares of common stock.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

techcrunch.com

SEPTEMBER 2, 2012

As lawyer Scott Edward Walker wrote earlier this year, because of this “Convertible notes are ticking time bombs: if the maturity date is reached, and there hasn’t been a Series A round (triggering the automatic conversion of the notes into shares of preferred stock), there is the potential for disaster.” Latest in Gadgets.

Equity 87

Equity San Francisco Technical Review Angel Investor 87

Berkonomics

FEBRUARY 3, 2022

There are clauses in preferred stock investment agreements allowing the investor in many cases to “put” the shares back to you at the purchase price plus dividends or more after a period, usually five years, if no effort is made to find a buyer or begin the IPO process.

Liquidity Event 62

Liquidity Event Preferred Stock Dividend Equity 62

ReadWriteStart

JANUARY 28, 2022

In the context of an equity definition, the “share” price refers to the relative value assigned to the corporation’s earning potential depending on various variables. These characteristics, comparable to those found in the fixed income market, can convert into common stock, call clauses, and other features.

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. Further, preferred stockholders can be recipient of accrued dividends in a sale or liquidation. The order of liquidation or payout.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

YoungUpstarts

JUNE 26, 2020

I personally blame my MIT classmate Aileen Lee, formerly with Kleiner Perkins, who coined the term Unicorn, a private company valued at over a billion dollars. 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.

Finance 205

Finance Silicon Valley Valuation Startup 205

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. But this is one of the very few times in a startup’s life where the co-founders are playing a zero-sum game.

Equity 315

Equity Founder Sweat Equity Cofounder 315

Startup Professionals Musings

MARCH 7, 2015

Strategies that I do not recommend include opening the discussion with a big number, hoping to make a more reasonable value feel like a good deal, or starting with a tiny number, hoping to entice interest from everyone. This is all about setting a credible current value on your startup -- not future value.

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120

Startup Professionals Musings

AUGUST 1, 2016

Investors expect a good value proposition in every pitch. Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Non-credible funding request or unreasonable valuation. Investors are looking to buy a chunk of the business, not the product.

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. But this is one of the very few times in a startup’s life where the co-founders are playing a zero-sum game.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

View from Seed

OCTOBER 15, 2014

Examples of housekeeping include the following list, though not every item will appear every time: Finance: Cash out date, burn rate, 409A valuation, cap table, common/preferred stock dashboard. Team: Hires, fires, departures, responsibility changes, major promotions, and your org chart. Section 8: Key Concerns/Help Wanted.

Seed Stage 331

Seed Stage Cap Table Metrics Burn Rate 331

Feld Thoughts

FEBRUARY 23, 2019

What I bought was three shares of Cities Service preferred stock. I particularly loved Warren Buffett’s reflections at the end of the letter in a section called The American Tailwind, which follows: On March 11th, it will be 77 years since I first invested in an American business. I had begun accumulating at age six.

Preferred Stock 108

Preferred Stock United States Dividend America 108

Berkonomics

JULY 23, 2020

Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment. Sometimes the end game or sale of the company is not a happy event. Dig into investment agreements for those expensive clauses.

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62

Up and Running

DECEMBER 1, 2015

Typically, employers that offer employees equity compensation will do so in the form of common stock, preferred stock, or stock options. This is a great deal for employees if shares of stock are high in the future. It’s called restricted stock because it often comes with restrictions, such as vesting.

Equity 60

Equity Employee Stock Options Vesting 60

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 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. Why is it called Series Seed? What rights does the Series Seed have? Law firm resistence.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

K9 Ventures

NOVEMBER 21, 2011

If you’re a founder who has worked your tail off for many many years (where “many many” is usually >>4 years) and you have succeeded in building a fair amount of value in the company, then why shouldn’t you be able to take some of that value off the table? The concept of the Series FF stock is a good example of this.

Founder 87

Founder Common Stock Preferred Stock Stock 87

ithacaVC

DECEMBER 22, 2012

And there are some angel investors that know that even with “light” preferred stock terms (sometimes called Series Seed), there is enough control built into the terms of the preferred stock that the company is still mostly restricted when it comes to making key decisions. Happy holidays too!

Seed Stage 82

Seed Stage Preferred Stock Founder Angel Investor 82

K9 Ventures

NOVEMBER 21, 2011

If you’re a founder who has worked your tail off for many many years (where “many many” is usually >>4 years) and you have succeeded in building a fair amount of value in the company, then why shouldn’t you be able to take some of that value off the table? The concept of the Series FF stock is a good example of this.

Founder 84

Founder Common Stock Preferred Stock Stock 84

Scott Edward Walker

APRIL 22, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? As discussed in part 1 , in the context of a seed financing, a convertible note is a loan that typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

Scott Edward Walker

SEPTEMBER 21, 2011

Indeed, the ideal investor is an experienced, sophisticated angel who can add substantial value through his or her domain expertise and/or rolodex. Finally, unless the startup is raising at least approximately $750,000, it generally is not in the company’s interest to issue shares of preferred stock.

Preferred Stock 45

Preferred Stock Angel Investor Entrepreneur Common Stock 45

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. But this is one of the very few times in a startup’s life where the co-founders are playing a zero-sum game. appeared first on AGILEVC.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

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