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

Agile VC

APRIL 17, 2011

At the end of the day Kayak’s playing a key role in the online travel process, but it appears more of the revenue comes from filling top of the conversion funnel rather than the middle or bottom of it. One can infer valuations based on per share prices of preferred stock and oustanding common shares (~5.3M as of 12/31/09).

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

Agile VC

DECEMBER 4, 2014

But delaying or avoiding the conversation often results in it being more awkward than it needs to be. 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.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Scott Edward Walker

APRIL 22, 2012

(ii) why are convertible notes issued instead of shares of common or preferred stock? This part 2 will address the economics of a convertible note seed financing and the three key economic terms: (i) the conversion discount, (ii) the conversion valuation cap and (iii) the interest rate. What Is a Conversion Discount?

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

Gust

OCTOBER 5, 2011

In case it isn’t clear by now, angel investors aren’t in the business of making risky early stage investments in order to earn 6% interest on their money, or even 10%— the upside is all in conversion to equity—so the interest rate isn’t a major point of negotiation. per share for 2,000,000 shares of newly issued Series A Preferred Stock.

Finance 79

Finance Preferred Stock Term Sheet Early Stage 79

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. Conversely, I have praised and seen others praise VCs who volunteer to eliminate participation clauses even before knowing the ultimate sales price in a deal.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

View from Seed

OCTOBER 15, 2014

Include both positives and negatives for a more productive board conversation, which is especially critical in the seed stage since nearly everything is in “figure it out” mode. Section 1: “High Level Summary” This is a short section that we’d recommend structuring in one of two ways.

Seed Stage 331

Seed Stage Cap Table Metrics Burn Rate 331

The Startup Lawyer

JUNE 22, 2010

For this article, let’s assume this equity is the Series A Preferred Stock purchased by a venture capital fund. For example, if a venture capital fund purchases Series A Preferred Stock at $1.00 per share, the discount may allow the angel investor to purchase the same Series A Preferred Stock at $0.75

Pre-Money Valuation 82

Pre-Money Valuation Angel Investor Preferred Stock Valuation 82

ithacaVC

DECEMBER 22, 2012

I recently engaged in a conversation (over a few days) about the need for a seed stage company to have a board member other than the founder. There is not a “right” answer to this, but the positions are worth exploring. For clarity, a company with one founder can have a one member board (assuming a corporation).

Seed Stage 82

Seed Stage Preferred Stock Founder Angel Investor 82

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

Startup Company Lawyer

MARCH 12, 2009

Any company that raises venture financing will need to be a C corp in order to issue preferred stock. In addition, the conversion of an LLC to a C corp results in additional legal and accounting expense. Almost all technology startup companies that I work with are C corps. citizen/resident stockholders. Governance/Structure.

LLC 61

LLC Stock Options Preferred Stock Stock 61

Business Plan Blog

APRIL 10, 2012

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.” In layman’s terms, investors will give money to a startup but instead of getting money back, they get preferred stock in return.

Finance 40

Finance Preferred Stock Equity Stock 40

The Startup Lawyer

FEBRUARY 13, 2012

Conversely, if you are raising a small convertible note round (sub $100k), then a couple extra interest points may not be that material. When the convertible note converts into equity, the interest also typically converts into the preferred stock, rather than being paid out.

Preferred Stock 73

Preferred Stock Dividend Equity Stock 73

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

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

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

Gust

OCTOBER 21, 2011

In Parts II and III, we looked at commonly used mandatory and voluntary conversion language in convertible notes. Investors would be repaid their principal, plus accrued interest, divided by the conversion price (let’s say 30% discount, so 1 – 0.3 = 0.7). a mix of cash and stock) received by other equity holders in the transaction.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

Business Plan Blog

NOVEMBER 13, 2013

Various terms such as price cap, discount, conversion to equity, etc., The terms of the note are 10% discount and an automatic conversion after a financing of $1,000,000. 3) Giving non-voting stock. Bridge notes/loans are an example of convertible debt. can be incorporated in the agreement at the time of financing.

Finance 93

Finance Accredited Investor Angel Investor Seed Capital 93

The Next Web

JUNE 17, 2015

And, on a similar note, I would limit equity conversations to service providers that are going to be long-term in nature, helping you build your business over time. Now that we understand which service providers we are willing to have equity conversations with, next we have to understand how to structure these deals.

Equity 60

Equity Valuation Preferred Stock Common Stock 60

ithacaVC

APRIL 5, 2011

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). The investor deserves to get preferred stock ultimately (remember, that was the goal of the convertible debt).

Common Stock 45

Common Stock Stock Cap Table Preferred Stock 45

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. Conversely, very junior employees have relatively little influence over the company, so their equity grants should be correspondingly much smaller, if at all.”.

Equity 60

Equity Employee Stock Options Vesting 60

ithacaVC

DECEMBER 13, 2013

QUESTION #3: What if Founder X and Founder Y issued themselves some sort of preferred stock instead of common stock? BUT, make sure you have a very clear listing of the debt, who owns it, when it was issued, interest rate and any applicable conversion discount. No problem as this happens all the time.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Both Sides of the Table

SEPTEMBER 5, 2012

The alternative is to give investors 1,2 & 3 the exact same amount of preferred Series A stock and give investors 1 & 2 more common stock (which doesn't have liquidation preferences) to adjust for the discount. I recommend that startups agree the “conversion price” at maturity. ” 2.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Austin Startup

OCTOBER 27, 2017

Out of State VCs When you’re not CEO Material Preferred Stock v. Common Stock Ask the Users Because we’re known as Startup/VC lawyers who don’t represent VCs (just companies), I often get asked about my thoughts on “founder friendliness.” Good entrepreneurs and advisors know that. Background reading: Local v.

Founder 48

Founder Cap Table Preferred Stock Common Stock 48

Both Sides of the Table

APRIL 14, 2010

In straight preferences the investors only get this money in a “downside&# scenario as protection that they get their money back if your company isn’t successful. Take liquidation preferences head on. Existing investors won’t want to have these conversations. It’s not easy.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Both Sides of the Table

APRIL 6, 2020

So my only goal is to give you insights into the conversations we’ve been having in case you don’t have the same access or advice. It’s slightly harder if you’ve only done an A-round and therefore have just one VC around the table who owns more than a majority of the preferred stock.

Programming 279

Programming Affiliate SBA Government 279

Both Sides of the Table

MARCH 21, 2010

If the goals are achievable but the partner isn’t performing you have a “carrot&# to use in difficult conversations. Make the warrants for common stock and not preferred stock. This is the same as with employee stock options. Have minimums but a sliding scale. Common Mistakes.

Warrant 298

Warrant Dilution Startup Stock Options 298

Scott Edward Walker

SEPTEMBER 14, 2011

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 conversion rights non-contractual rights redemption (..)

Term Sheet 76

Term Sheet Due Diligence Liquidation Preference Redemption 76

Scott Edward Walker

JULY 27, 2011

Introduction For the past few months, I’ve been discussing the rights of VC investors in connection with preferred stock financings, including the following: liquidation preferences anti-dilution provisions dividends Board control protective provisions drag-along provisions pay-to-play and pull-up provisions conversion rights redemption rights All (..)

Delaware 49

Delaware Liquidation Preference Redemption Los Angeles 49

Tim Keane

JANUARY 12, 2010

Term-sheets for preferred stock offerings are designed to protect the investor in case things don’t go as well as planned. Term-sheets for preferred stock offerings are designed to protect the investor in case things don’t go as well as planned.   The answer to that, in a word, is risk, - the uncertainty of outcome.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

thestartuplawyer.com

FEBRUARY 24, 2010

do not think being friends or relatives reduces the need for these difficult and/or awkward conversations. 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.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

Startup Company Lawyer

JANUARY 11, 2010

As I have written previously , I think that convertible notes with even large conversion price discounts (e.g. For example, typical provisions in a company-friendly pre-Series A convertible bridge note financing may include a 20% conversion discount from the Series A price and a 2x return on a sale of company.

Angel Investor 39

Angel Investor Valuation Bridge Financing Preferred Stock 39

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). As you can see, I don’t think any startup has joined an incubator based solely on the pre-money valuation.

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

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. Preference shares. A class of stock with special rights as described in your startup is called preference shares. Convertible notes.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

Professor VC

DECEMBER 26, 2012

I did finally chime in on the twitter discussion yesterday: I first blogged about this topic almost two years ago when I called out the large number of convertible debt seed financings that weren't going to have any conversion event. Is it a good thing that so many entrepreneurs are able to get $250K - $1.5M in seed financing?

Finance 48

Finance Angel Investor Private Equity Preferred Stock 48

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

Hunter Walker

SEPTEMBER 29, 2022

All the preferred stock is pari passu and behaving honorably in the best interest of the company? Conversely, if you’re not a good picker, it’s difficult to overcome that, even if you had perfect timing on secondary sales. We’re aligned with the founders and the rest of the cap table until we aren’t.

Venture Capital 122

Venture Capital Cap Table LP Equity 122