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. Also, mergers, acquisitions, and alliances with other companies almost always drive the need to modify your organizational entity for legal or operational purposes.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Startup Professionals Musings

MAY 18, 2015

Even though initial stock has no value or market, it is extremely valuable in dividing entity ownership between multiple co-founders, commensurate with their investment, contribution and role. 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

Feld Thoughts

SEPTEMBER 27, 2011

So the lenders don’t see any of the upside on the acquisition. The potential bad news is that if the merger is an all stock deal, the company will need to find a way to find cash to pay back the loan or negotiate a way for the acquiring company to deal with the debt. Some sort of conversion does occur.

Conversion 96

Conversion Sales Later Stage Preferred Stock 96

Agile VC

FEBRUARY 28, 2013

I had read somewhere that Apple’s cash pile was equivalent to Hungary’s GDP so I tweeted out the suggestion that perhaps an activist shareholder should push an acquisition of Hungary rather than thinking small (e.g. increasing dividends or issuing preferred stock).

Hungary 168

Hungary Dividend Vertical Preferred Stock 168

Gust

OCTOBER 5, 2011

Mandatory Conversion : The Notes and any accrued interest will be converted into the Company’s next issued series of preferred stock resulting in new money of not less than $1,000,000 (an “ Eligible Financing ”) at a discount to the per-share price of such preferred shares of 25% (the “ Conversion Price ” ).

Finance 79

Finance Preferred Stock Term Sheet Early Stage 79

Steve Blank

OCTOBER 24, 2017

Facebook’s ~$20 billion acquisition of WhatsApp, a 5-year-old startup that had $10 million in revenue, made no sense until you realized that Facebook was paying to acquire 300 million new users.). Traditionally, in exchange for giving the company money, investors would receive preferred stock, and founders and employees owned common stock.

Founder 245

Founder Technical Review CTO Hire IPO 245

Gust

OCTOBER 21, 2011

For convertible notes, the only liquidity event we need be concerned with is an acquisition of the startup in the near future, before the maturity date; otherwise, the notes will convert to equity of one kind or another, and the eventual sale of that equity (in a public offering, acquisition, or private sale) is a different subject for another day.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

www.mattbartus.com

SEPTEMBER 24, 2011

I have been in post-acquisition disputes where a consultant claimed they were still “consulting” and earning shares even though it seemed clear that the company stopped using the services of the consultant. First, you’d probably want them to receive common stock, not preferred stock (which is the likely next round).

Equity 40

Equity Vesting Silicon Valley Intellectual Property 40

Scott Edward Walker

MAY 15, 2012

What Happens If a Startup is Acquired Prior to the Note’s Conversion to Shares of 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.

Finance 64

Finance Founder Accredited Investor Preferred Stock 64

Scott Edward Walker

JULY 7, 2011

A redemption right is another feature of preferred stock and permits the investors to require the company to repurchase their shares after a specified period of time; it is, in effect, a “put” right – that is, the investors may elect to put their shares back to the company. Redemption Rights What Are Redemption Rights?

Term Sheet 49

Term Sheet Redemption Venture Capital Preferred Stock 49

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. While some companies may use it as a means of paying employees a lower salary upfront, it’s very rarely offered as a complete replacement to receiving a regular compensation package.

Equity 60

Equity Employee Stock Options Vesting 60

Gust

JULY 18, 2012

Ordinary shareholders do little more than monitor their investments, vote in the annual or other election of directors, and on rare occasions, cast special votes on certain decisions such as accepting or rejecting an acquisition offer. Here is where the concept of fiduciary duty looms large.

Stock Options 188

Stock Options SEC Stock Government 188

Business Plan Blog

NOVEMBER 13, 2013

The return only happens when there is an exit via acquisition or an IPO. 3) Giving non-voting stock. NOTE: Angel investors are typically allocated common stock, the same class of stock as owned by founders, as opposed to preferred stocks, which are offered to VCs. Raising Angel Capital. About The Author.

Finance 93

Finance Accredited Investor Angel Investor Seed Capital 93

www.payne.org

SEPTEMBER 22, 2011

Your offer will almost surely be for common stock. Preferred stock classes typically go to investors, and in some cases founders (usually where the founders have already invested some of their own money to build the company). If the company is acquired or liquidated, the preferred stock holders will get paid first.

Equity 56

Equity Employee Vesting Preferred Stock 56

Startup Company Lawyer

FEBRUARY 21, 2010

I was speaking at an event last month to a group of CEOs and was surprised by the number of CEOs that were worried about the value of their common stock in a M&A transaction. Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

thestartuplawyer.com

FEBRUARY 24, 2010

Contact The Startup Lawyer: Home Page About Contact FAQs Glossary Ryan Roberts Law: Home Page Social Networks: Facebook Twitter LinkedIn Flickr Delicious Digg Last.FM He obviously never launched a startup and got shafted by a co-founder. He obviously never launched a startup and got shafted by a co-founder. Leave a Reply Click here to cancel reply.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

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

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. A class of stock with special rights as described in your startup is called preference shares. Why is a cap table important for a small business?

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

www.mattbartus.com

DECEMBER 9, 2012

an option to purchase shares in the future at a pre-determined price) to the investor to purchase preferred stock at the Series A price. This is usually done when the company is acquired — if the acquisition price per share of Series A is greater than $0.50, the VC will receive the spread between $0.50

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Hunter Walker

SEPTEMBER 29, 2022

So for the most part a venture investor holds their equity until the company exits via an acquisition, IPO, or some sort of other liquidity event (management buyout, whatever). All the preferred stock is pari passu and behaving honorably in the best interest of the company?

Venture Capital 122

Venture Capital Cap Table LP Equity 122

Startup Company Lawyer

APRIL 23, 2009

Super-voting common stock is sometimes seen in companies where founders or a family wish to maintain control of a company after obtaining outside investment. Holders of Class F common stock are allowed to elect one director. Protective provisions.

Common Stock 33

Common Stock Stock Dividend Delaware 33

Scott Edward Walker

NOVEMBER 26, 2017

It’s the same with acquisitions. If an investor knows you have other investors lined up, he’ll be a lot more eager to close — and not just because he’ll worry about losing the deal, but because if other investors are interested, you must be worth investing in.

Term Sheet 63

Term Sheet San Francisco Founder Investment Bankers 63

Gust

OCTOBER 26, 2011

merger or acquisition). Many angels are comfortable enough to work without legal counsel in deals that follow the established patterns they’ve seen many times before, whether structured as convertible debt or preferred stock.

Finance 79

Finance Term Sheet Covenant Accredited Investor 79

www.paulgraham.com

APRIL 28, 2010

Its thesame with acquisitions. He might also want preferred stock, meaning a specialclass of stock that has some additional rights over the common stockeveryone else has. No one wants to buy you till someone elsewants to buy you, and then everyone wants to buy you.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

www.vccafe.com

MARCH 11, 2013

great web customer acquisition tutorials. Preferred Stock Purchase Agreement. mixpanel vs kissmetric vs google analytics review. Analytics blog â?? good analytics tutorials. SEO for Startups â?? good tutorial. Andrew Chenâ??s s Essays â?? Analytics Tools. Google Analytics â?? web analytics from the borg. Kissmetrics â??

Software Review 53

Software Review Technical Review Startup 53