When an investor like Fidelity puts tens of millions of cash into Spotify at a $3bn valuation, they are not buying publicly traded common stock that will go up and down with the value of the company. I did a talk with Bill Werde at Billboard's FutureSound conference a few weeks ago. The entire talk is online (in two parts) here. MORE

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. MORE

In this post we look at when an investor’s preferred stock may or must convert to common stock, and how the conversion ratio may be adjusted in certain circumstances. Preferred stock typically converts to common stock either: (a) at the option of the stockholder (“Optional Conversion”); or. (b) Second, the other issue of some concern to the company is what percentage of investors can compel all investors to convert to common. MORE

I typically advise issuing 50% to 80% of the authorized shares of Common Stock to the initial founders upon incorporation. Thus, if the certificate of incorporation authorizes 10,000,000 shares of Common Stock, an aggregate of 5,000,000 to 8,000,000 share should be issued at incorporation. If the startup plans to bring on additional founders in the […]. Incorporation MORE

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. One rule of simple cap tables is to issue “normal” stock to founders (common stock only) and investors (typically preferred stock, but sometimes common stock to early friends and family). I am a huge fan of simple cap tables. MORE

If there is one piece of advice I would give to the founders of BST, it is to consider selling a part of their personal stock in the company at that stage. If things go well, and your company succeeds beyond your wildest dreams, it will end up being the most expensive house ever (because you could have held your stock and made a lot more on it). 3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity. MORE

San Antonio-based Payment Data Systems, which processes online payments for other companies, announced Tuesday that it has received confirmation that its common stock will begin trading on the NASDAQ Capital Market starting Aug. In addition, Michael Long, chairman and CEO of Payment Data Systems and Louis Hoch, the company’s president, will ring the opening […] The post Payment Data Systems to Begin Trading on the NASDAQ Stock Market appeared first on SiliconHills. MORE

A little bit of background first on options: In order to issue options, your company must have a valid 409A valuation setting the fair market value (“FMV”) of a share of common stock. MORE

As a quick review, most startups begin life as corporations with a single class of equity securities, referred to as Common Stock , issued to founders, employees, and outside service providers. MORE

The question is whether they need to issue common or preferred stock. The answer depends on how and what rights are defined in the preferred stock. I get the same question a lot from entrepreneurs raising equity capital (venture capital or angel funding). MORE

Fully-diluted capital expresses the entire capitalization of a company in terms of shares of the company’s common stock by taking the shares of common stock already issued and outstanding and adding shares of common stock that may be issued upon (a) conversion of any convertible securities (such as convertible preferred stock) or (b) exercise of any rights to acquire common stock underlying options, warrants or other derivative securities. MORE

In contrast, standard venture capital deal terms are geared towards a pre-IPO conversion of all classes into common stock Google recently made headlines with an announcement that it is planning on splitting its shares and creating a new class of shares without voting rights. In addition, fairly recent high-profile IPOs of internet/technology companies like Zynga and Groupon demonstrate a trend of going public with a dual class or multi-class capitalization structure. MORE

If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early. Less than you’ll probably grant your most junior employees in stock options? If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. Stock Option plans. MORE

In reality, so-called “founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. Stock dilution control. MORE

Under the terms of the deal, Expedia will offer to acquire each outstanding share of HomeAway’s common stock […] The post Expedia to Buy HomeAway for $3.9 Expedia, based in Bellevue, Washington, announced Wednesday plans to buy Austin-based HomeAway in a deal worth about $3.9 billion. That represents a per share price for HomeAway of $38.31, based on Expedia’s closing price on Nov. MORE

In a larger startup post Series A or B, the board might be expanded to five people, with two directors chosen by the Common stock holders (the founders), two by the investors (often one by each of two VC funds), and one independent director agreed to by everyone. A company’s board of directors is technically elected by the company’s shareholders. MORE

They used to be more common twenty five years ago when I entered the venture capital business. This requirement to exercise upon departure is a big reason why the secondary market in employee common stock has taken off. Employees who leave companies need to sell some of their vested stock to come up with the cash to exercise and pay taxes associated with exercise. That's how Skype's option plan is described in this piece by Felix Salmon. MORE

A startup founder’s desire to hold equity better than plain-vanilla common stock isn’t new. Several years ago, Series FF stock for founders was all the rage when it came to founder liquidity at subsequent financing rounds. We implemented Series FF for a handful of clients back then but we haven’t done so recently. In the past couple years, we’ve … Continue reading → Incorporation MORE

In reality, so-called “Founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. Stock dilution control. MORE

Facebook shareholders quickly voted down a proposal to give its common stock shareholders more say in the company's decisions MORE

In reality, so-called “Founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. Stock dilution control. MORE

Its common stock, under the symbol RAX, will no longer be listed for trading on the […] The post Rackspace Officially Goes Private in $4.3 MORE

From time to time on Founders Workbench we give a brief primer on common terms and issues in venture financings. Today, we’re tackling participating versus non-participating preferred stock, a fundamental economic term in VC deals that goes to the heart of the business agreement between investors and management in connection with a sale of the company. This post by Ian Engstrand first appeared on Founders Workbench. MORE

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. MORE

These provisions include a special class of super-voting common stock, called “Class F&# common stock, which is named for “Founders.&#. The COI includes Class A common stock, which has one vote per share, and Class F common stock, which has 10 votes per share. Companies such as Google , Martha Stewart Living Omnimedia , Broadcom and others have super-voting common stock. MORE

Global Cash has agreed to acquire all outstanding common stock of Multimedia Games for $36.50 per share, 31 premium from the stock’s close on Sept. The news sent Multimedia Games’ stock which […] The post Global Cash Access Acquires Austin-based Multimedia Games for $1.2 Global Cash Access Holdings of Las Vegas announced Monday plans to buy Austin-based Multimedia Games Holding Co. for $1.2 billion in cash. MORE

This check is for The Community Foundation and for the Entrepreneurs Foundation of Colorado (EFCO) and results from a gift of 24,793 shares of common stock from Rally at the time of its first financing that represented approximately 1% of the equity of the company. MORE

For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. Numbers in the 20 percent to 30 percent range are common. Type of stock assigned to the investor. Even founder’s shares are common stock. MORE

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. MORE

Preferred shares behave like a stock on the upside and a bond on the downside. I recently had a number of conversations with CEOs of later-stage startups (generating significant revenue) that went something like this. MORE

By Sean Greaney: sgreaney@stubbsalderton.com Originally published on Stubbs Alderton & Markiles, LLP Sean Greaney, attorney with Stubbs Alderton & Markiles, LLP gives an informative introduction to Restricted Stock for startup companies. What is founder restricted stock? Founder restricted stock refers to shares of common stock that are owned by a founder but are subject to forfeiture upon the occurrence of certain contractually agreed upon events. MORE

In fact, it seems very rare to see a convertible note without a price cap these days, although it was fairly common to raise convertible debt without a price cap a couple of years ago. A logical alternative to convertible debt is a priced Series A preferred stock financing. Tweaking convertible debt so that common stock (instead of preferred stock) is issued for the conversion discount in order to limit liquidation preference overhang. MORE

Here are the issues I have addressed to date: common mistakes dealing with VC’s valuation liquidation preferences stock options exploding term sheets and no-shop provisions anti-dilution provisions dividends Board control protective provisions drag-along provisions pay-to-play and pull-up provisions In today’s post, I examine conversion rights of investors. As many of you know, VC investors are typically issued shares of preferred stock, not common stock. MORE

The answer to that question at the pre-conference speaker’s dinner implied unanimous agreement (from a group consisting of many of the top angels, VCs, lawyers, and pundits in the industry), that “direct, equity-based, common stock crowd funding as envisioned by the JOBS Act” would absolutely, positively preclude future investment by any serious professional investor, either angel or VC. MORE

If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early. Less than you’ll probably grant your most junior employees in stock options? If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. This week. MORE

I also saw this tweet from Sam Altman yesterday: if founders are selling their own stock less than 1 year into the company, you can nearly always safely pass on investing. — 6/ passing that test means that the common stock is “good money” and that the choice of the founder to sell it is not mitigation of risk issue as much as it is an asset allocation issue. MORE

Valuation — Know what these terms mean: Fully-diluted — This includes all issued stock and anything that could be converted into common stock (typically after an acquisition or IPO), such as your stock option pool. MORE

There are numerous different ways to calculate this, such as: $20,000 worth of common stock at the last value ascribed to either the common or preferred stock; $20,000 worth of the last round of preferred stock at that’s rounds price of the stock; or. 20,000 worth of the next round of preferred stock at whatever price that happens to be. MORE

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. MORE

If there is one piece of advice I would give to the founders of BST, it is to consider selling a part of their personal stock in the company at that stage. If things go well, and your company succeeds beyond your wildest dreams, it will end up being the most expensive house ever (because you could have held your stock and made a lot more on it). 3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity. MORE

4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) Here’s what I’d do in the beginning: Incorporation. (1) 1) Entity Choice: Corporation or Corporation. (2) 2) State of Incorporation: Delaware. (3) 3) Authorized Shares in Charter: 10,000,000 Shares. (4) 6) Initial Founders Issuance: 8,000,000 Shares. (7) 7) Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations. (8) MORE

This, plus the informal way the term is used in venture financings, puts a premium on the parties explicitly agreeing to a commonly-understood definition. In general, the term "fully-diluted" attempts to capture the notion of how many shares of Common Stock would be outstanding if all securities of the company that either (1) are outstanding or (2) are available for the board to grant or issue actually become Common Stock in accordance to their terms. MORE

Additionally, they introduce a small amount of complexity and an element of misalignment between the investor and the common stock holder (usually the founder). I just read a New York Times article that led with the sentence “Deep inside a Silicon Valley unicorn lurks a time bomb”. It turns out that ‘time bomb’ is the much maligned and, I suspect, little understood, liquidation preference. MORE