Both Sides of the Table

SEPTEMBER 18, 2014

It’s like we need a finance 101 course for entrepreneurs. In finance they call it “terminal value” but the truth is the price is as arbitrary at your A round as it is at your seed round. Less than you’ll probably grant your most junior employees in stock options? Me: More dilution? A down round?

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Austin Startup

JULY 6, 2018

Re: cash, the more “unbundled” types of accelerators (less formalized, less equity) tend to not provide any cash upfront, but also typically “cost” less in equity, often just 1–2% of your fully diluted capitalization. Anti-Dilution. See: Startup Accelerator Anti-Dilution Provisions; The Fine Print.

Dilution 48

Dilution Startup Technical Review Equity 48

Both Sides of the Table

FEBRUARY 19, 2019

This is often true when the action of the board could dramatically affect shareholders such as raising new capital, acquiring new businesses (that drain existing cash or dilute shareholders), selling the company or raising a lot of debt. Equally it could vote to increase the stock option plan to 99% of the company.

Startup 204

Startup Dilution Government Stock Options 204

Up and Running

SEPTEMBER 20, 2021

And as the company grows, it brings on new people and may decide to issue stock options to attract new staff and funding from investors. Furthermore, there are various forms of equity, such as preferred stock, common stock, and convertible notes, which influence the present and potential future investors. Common shares.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

Both Sides of the Table

SEPTEMBER 10, 2021

And the loosening of federal monetary policies, particularly in the US, has pushed more dollars into the venture ecosystems at every stage of financing. What Has Changed in Financing? even before the pandemic itself has been fully tamed. We have global opportunities from these trends but of course also big challenges.

Pre-Money Valuation 471

Pre-Money Valuation Valuation Venture Capital Early Stage 471

Austin Startup

MARCH 26, 2019

These strategies can be useful in increasing initial conversions from your ads and website traffic, but offering large discounts too early in the life of the company will lower your gross margins and CAC, both of which will affect your unit economics and future financing conversations.

Technical Review 49

Technical Review Software Review China Acquisition 49

Hunter Walker

AUGUST 8, 2023

Satya and I were having lunch (yummy Chinese food) with our LPAC and the conversation turned to generally “how much more did venture portfolios have to fall before they found their true current value?” ” That is, for the class of funds institutional LPs tend to back, on average, where was bottom? Soft Acquisition Market.

Portfolio 98

Portfolio Cap Table LP Valuation 98

Startup Professionals Musings

JANUARY 27, 2012

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Anti-dilution protection.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 223

This is going to be BIG.

FEBRUARY 27, 2011

You get dilution sensitive and you start optimizing on price of a financing deal, versus finding the right partners or raising enough money to grow. Wouldn’t it be better to walk into a hiring conversation knowing that you can’t be outbid for the dream hire?

Dilution 104

Dilution Equity Hiring Partner 104

Gust

OCTOBER 21, 2011

In Parts II and III, we looked at commonly used mandatory and voluntary conversion language in convertible notes. To account for scenarios in which the startup is acquired before it has a chance to complete a priced equity financing round, most term sheets and deal documents contain a “ change in control ” provision.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

Startup Professionals Musings

SEPTEMBER 14, 2010

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Anti-dilution protection.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

Scott Edward Walker

JUNE 9, 2019

Over the past few weeks, two of my clients have received financing term sheets in which the investors requested super pro rata rights. Simply put, pro rata rights permit the investor to maintain its percentage ownership in subsequent financing rounds. Introduction. Pro Rata Rights.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

Gust

OCTOBER 12, 2011

Last week , we took the plunge and began dissecting an example term sheet for a convertible debt financing round piece by piece. In Part II, we looked at the mandatory conversion language that is at the heart of any convertible debt financing. First, a word about the maturity date.

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

Scott Edward Walker

APRIL 9, 2012

Introduction We are in the golden age of seed financing. Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook. Why Can’t a Startup Issue Shares of Common Stock to Investors?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Berkonomics

JUNE 15, 2017

To protect against such an event, almost every professional investor includes a clause in the investment documents which allow the investor to “put” the stock back to the company after five years, requiring the company to pay back the investment plus dividends accrued during the term of the investment.

Liquidity Event 97

Liquidity Event Initial Public Offering Dividend Valuation 97

Tim Keane

JANUARY 12, 2010

For angel groups, the distinction between groups and VCs on this issue is dwindling, especially as angel groups do bigger rounds of financing.   Note that this applies only to earl stage Series A-type equity financings and assumes no cash dividends are paid to investors.   First , dividends.   Why is this fair?

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Ben's Blog

MAY 24, 2021

For public investors in Facebook to achieve returns comparable to those of Microsoft shareholders, Facebook would need to reach a market cap of $500 trillion, a number that well exceeds the total global market cap of all listed stocks.

SEC 36

SEC Accredited Investor IPO Technical Review 36

keen.io

FEBRUARY 5, 2013

For example: Don’t accept equity compensation (stock shares) without knowing the percentage of the company you’ll own. To begin answering this question, I started on a quest to understand startup financing. And they gave me a choice whether I’d want more stock or a higher salary.” First, I read Venture Deals by Brad Feld.

Salary 50

Salary Equity Startup San Francisco 50

Gust

SEPTEMBER 17, 2014

It’s like we need a finance 101 course for entrepreneurs. In finance they call it “terminal value” but the truth is the price is as arbitrary at your A round as it is at your seed round. Less than you’ll probably grant your most junior employees in stock options? Me: More dilution? These are all real conversations.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Gust

OCTOBER 17, 2011

As the company grows and the second or third group of investors comes in, the terms of each subsequent financing grow in size, scope, and the number of lawyers’ fingerprints on them. The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Anti-dilution protection.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 158

Scott Edward Walker

JUNE 9, 2011

Conversion Rights What Are Conversion Rights? As many of you know, VC investors are typically issued shares of preferred stock, not common stock. As many of you know, VC investors are typically issued shares of preferred stock, not common stock. What Are Optional Conversion Rights?

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

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. It should also provide a combined summary so that it is easy to see who owns what % of the company on a fully diluted and converted basis.

Common Stock 45

Common Stock Stock Cap Table Preferred Stock 45

Startup Company Lawyer

JANUARY 9, 2011

Convertible debt with a price cap seems to be the preferred structure for early-stage financings. Over the last 12 months, I’ve noticed a trend where early-stage startup companies raise seed financings of between $250K and $1M using a convertible note with a price cap. Is a priced Series A financing a valid alternative?

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

ithacaVC

DECEMBER 13, 2013

They are typically pretty simple: (i) shares owned by founders and (ii) shares authorized for issuance in a stock option pool, some of which may be issued to employees already and some of which will be available for future issuance. S0, being able to clearly state how many options you want to grant at the time of the financing is KEY.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Both Sides of the Table

APRIL 14, 2010

Liquidation preference is the amount of money that an investor gets paid before the common stock (e.g. It also gets the new investor concerned that management (common stock holders) will not be incentivized because they realize that the investors will take most of the money unless there is a big upside scenario. But pass they will.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

venturehacks.com

OCTOBER 21, 2010

You explain that the company currently has 6M shares outstanding so the investors must be valuing the company’s stock at $1.33/share: Reading on, the term sheet states, “The $8 million pre-money valuation includes an option pool equal to 20% of the post-financing fully diluted capitalization.&#

Option Pool 68

Option Pool Pre-Money Valuation Dilution Warrant 68

Startup Company Lawyer

JANUARY 31, 2011

Automatic conversion: on a $1M equity financing with no conversion discount and no price cap , provided that the transaction documents provide for a right to purchase a pro rata share of future financings. (I Optional equity conversion: on other equity financings with no conversion discount and no price cap.

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

K9 Ventures

MARCH 23, 2011

The convertible note was really intended as an instrument for a “bridge financing” – when an equity round was imminent, and likely to occur, but the company needed some money in between. In that case, it made good sense to have a debt instrument, where the note holder then converted into equity when the financing occurred.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

ithacaVC

JANUARY 24, 2013

Having a relatively small about of convertible debt on your balance sheet prior to your Series A financing is not a bad thing. Let’s assume the following: Common Stock outstanding: 3,400,000 shares owned by the founders. And let’s assume that the debt has a 20% conversion discount. Ouch, then the dilution is real.

Valuation 53

Valuation Balance Sheet Option Pool Dilution 53

venturehacks.com

MARCH 21, 2008

You get money, save stock, and amplify the advisor’s social proof in the process. If an advisor can uncork a million dollars of your company’s latent value with 15 minutes of conversation or a single introduction, you should pay him appropriately. 0.25% of a company’s post-Series A stock. Compensation 7.

Advisory Board 44

Advisory Board Cap Table Vesting Equity 44

Berkonomics

JANUARY 27, 2010

To protect against such an event, almost every professional investor includes a clause in the investment documents which allow the investor to “put” the stock back to the company after five years, requiring the company to pay back the investment plus dividends accrued during the term of the investment.

Liquidity Event 67

Liquidity Event Initial Public Offering Dividend Valuation 67

Austin Startup

AUGUST 1, 2017

TL;DR: In a market that has historically idolized huge, splashy financings and exits, an increasing number of entrepreneurs are realizing that everyone else’s definition of success — particularly among certain large VCs — isn’t necessarily aligned with their own. And large checks require very large exits to achieve good returns.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

Scott Edward Walker

JULY 27, 2011

A minority stockholder has the right to inspect the corporation’s stock ledger, a list of its stockholders and its other books and records (and to make copies of such items). Rights of Minority Stockholders Below are three significant rights of minority stockholders. 1) Inspection Right. Conclusion I hope the foregoing is helpful.

Delaware 49

Delaware Liquidation Preference Redemption Los Angeles 49

VC Adventure

AUGUST 30, 2010

Typically this conversion is at a discount to the next equity round (to compensate the debt investors for their risk) and sometimes carries warrants (same rational) or a cap on the equity price that the debt converts into. Convertible debt is exactly that – debt which is convertible into equity at some later point in time (or is paid off).

Angel Investor 103

Angel Investor Early Stage Equity Valuation 103

The Startup Lawyer

FEBRUARY 4, 2011

Thus your startup needs to determine the intangible value offered by the incubator (and yes, a $150,000 convertible note with no cap and no conversion discount qualifies as an intangible). Like any issuance of stock or investment, one of the main things a startup should be concerned with is: Is this going to fuck up a future financing ?

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

Seeing Both Sides

JULY 15, 2009

VCs have an unfair advantage when it comes to financings. A typical start-up company will do 2-4 venture capital financings before a successful exit (or, conversely, an ignomious ending). In contrast, the typical venture capitalist, either individually or across their partnership, will do 5-10 financings in any given year.

Pre-Money Valuation 49

Pre-Money Valuation Option Pool Stock Options Post-Money Valuation 49

Startup Company Lawyer

JANUARY 11, 2010

I seem to be doing a lot of pre-Series A convertible bridge note financings these days. As I have written previously , I think that convertible notes with even large conversion price discounts (e.g. 50%) or warrant coverage are typically more company-favorable than a Series A financing where a valuation is set.

Angel Investor 39

Angel Investor Valuation Bridge Financing Preferred Stock 39