Startup Professionals Musings

FEBRUARY 8, 2019

Many entrepreneurs follow old shoebox habits in managing expenses until the company launches. 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. You’ll also need to save tax records, bank statements, canceled checks, and contracts.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

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. A cap table will help you in the strategic management of business decisions. Preference shares. A class of stock with special rights as described in your startup is called preference shares.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

Hunter Walker

SEPTEMBER 29, 2022

Below I’ll share some of the principles we use at Homebrew , knowing that there’s not really a single ‘right’ answer for a fund manager. 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).

Venture Capital 122

Venture Capital Cap Table LP Equity 122

Gust

JUNE 7, 2014

Also, as Ben Black mentioned in his answer, in some cases the investors may choose to provide an incentive to the management team, in order to ensure that the sale goes through, and quickly. So, here is the typical payout order, from first to last: 1) Salaries owed to employees. Management carve-out (if any).

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

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. One tool often used: the “cutout” for management. That further reduces the amount available to founders if not still in the ranks of management.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

Startup Company Lawyer

MARCH 12, 2009

C corps, LLCs, and S corps differ significantly in the areas of taxation, ownership, fundraising, governance and structure, and employee compensation. Any company that raises venture financing will need to be a C corp in order to issue preferred stock. Employee Compensation. such as incentive stock options.

LLC 61

LLC Stock Options Preferred Stock Stock 61

www.payne.org

SEPTEMBER 22, 2011

Startup Equity For Employees. 2 Stock Classes: Common and Preferred. 5 Stock vs Options. 6 Founders / Restricted Stock. The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and Im getting more calls from friends asking for help understanding startup stock (equity) offers.

Equity 56

Equity Employee Vesting Preferred Stock 56

ithacaVC

FEBRUARY 23, 2011

A management carve out plan (MCOP) is a written obligation of the company that, in simple terms, provides that certain management members get a predetermined slice of proceeds when a company is sold. As the investors’ aggregate liquidation preference (ALP) increases typically the need for a MCOP also increases.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

www.mattbartus.com

SEPTEMBER 24, 2011

People tend to underestimate how much record keeping is involved with managing employees and consultants, and this just adds an unacceptable extra burden. First, you’d probably want them to receive common stock, not preferred stock (which is the likely next round). link] Casey Allen. Matt: Fantastic posts.

Equity 40

Equity Vesting Silicon Valley Intellectual Property 40

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. So this advice is directed to the investors.

Dividend 48

Dividend Preferred Stock IRR Participating Preferred 48

Startup Company Lawyer

FEBRUARY 21, 2010

Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless. If you can’t figure this out yourself, you should probably build a liquidation preference spreadsheet to model how liquidation preferences work depending on M&A transaction value.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

K9 Ventures

MAY 14, 2011

They are generally high net worth (accredited) individuals who have done well in their career, either as entrepreneurs or as executives and early employees at some of the companies that have done well (in the Valley that usually means Paypal, Google, Facebook etc). Common Stock. Convertible Note or Preferred Stock.

Preferred Stock 125

Preferred Stock Seed Stage Incubator Early Stage 125

Gust

JULY 18, 2012

For startups, it’s also important to understand that Board approval is required for a corporation to issue any new shares of stock or other equity instruments such as stock options. For that reason, approval of the latest employee stock option grants recommended by the CEO is a routine action item at most startup Board meetings.

Stock Options 188

Stock Options SEC Stock Government 188

Ben's Blog

JULY 16, 2013

First, if you did not understand how radically the fundraising environment might change, then there is no chance that your employees would have understood it. In fact, if you are like most companies, your managers probably implied to your employees that your stock price would only rise as long as you were private.

Down Round 78

Down Round Marketing Preferred Stock Post-Money Valuation 78

Board Effect

MAY 10, 2019

Cap tables list a company’s authorized and outstanding shares, the parties to which those shares have been assigned, and the various metrics relevant to managing them. Such metrics can include an investor’s liquidation preference, option exercise windows and expiry dates, and shareholders’ fully diluted ownership percentages.

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Ben's Blog

JULY 16, 2013

First, if you did not understand how radically the fundraising environment might change, then there is no chance that your employees would have understood it. In fact, if you are like most companies, your managers probably implied to your employees that your stock price would only rise as long as you were private.

Marketing 46

Marketing Preferred Stock Post-Money Valuation Down Round 46

ithacaVC

JUNE 20, 2011

You need (or think you need) a stock option plan: granting stock options (and other forms of equity compensation to employees like restricted stock) should be done under a written equity incentive plan. And each award to a given employee requires a separate grant agreement laying out the terms of the grant.

Stock Options 58

Stock Options Vesting Subscription Agreement Founder Vesting 58

Tim Keane

JANUARY 12, 2010

Good investors use the valuation discussions to gauge the business savvy of the management team and to understand their ability to appreciate and deal with economic market forces that set values.   For individual angels and others investing their own money, this may be more fluid than for someone with responsibility for a managed fund.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

www.vccafe.com

MARCH 11, 2013

Task Management. Project Management Tools. Subscription Payments / Management. Managing APIs. Customer Relationship Management. Contractor Management. Private beta invitations & management: Prefinery. Scanning / Document Management. Project Management tools. Part 4- Closing.

Software Review 53

Software Review Technical Review Startup 53

Growthink Blog

MAY 10, 2012

With this funding, the company often perfects its business plan and starts building its management team in order to position itself for its next round of funding. The name is derived from the class of preferred stock investors receive in return for their capital.

Equity 88

Equity Mezzanine Later Stage Venture Capital 88

www.paulgraham.com

APRIL 28, 2010

And if trouble withinvestors is one of the biggest threats to a startup, managing themis one of the most important skills founders need to learn. The reason is that employees are investors too—oftheir time—and they want just as much to be able to cash out. Theres only common stock at this stage.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

Altgate

MARCH 16, 2009

 The notion of entrepreneurs starting companies and having substantial ownership then hiring employees who also have ownership in the company and then raising capital from outside investors is universal.   In India and China there is no preferred stock.   In India and China there is no preferred stock.

Global 28

Global India United Kingdom 28

Up and Running

MAY 23, 2016

I used a freelance web designer and I only created the core functions to create, send, and manage invoices. Delaware law gives preferred stock investors of a corporation certain voting rights and control over the corporation. Delaware permits a single-member board of directors. Pick a name for your business.

Software Review 74

Software Review Software Delaware Forecast 74

Professor VC

JANUARY 17, 2008

One of the panelists mentioned that they have gotten very valuation sensitive (nothing wrong with that) and like to purchase preferred stock rather than invest in convertible notes. There needs to be enough equity to go around for founders, early investors, later investors, and employees.

Pre-Money Valuation 28

Pre-Money Valuation Angel Investor Angel Groups Valuation 28

www.paulgraham.com

APRIL 28, 2010

You give a startup money and they give you stock. Youllprobably get either preferred stock, which means stock with extrarights like getting your money back first in a sale, or convertibledebt, which means (on paper) youre lending the company money, andthe debt converts to stock at the next sufficiently big fundinground. [

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63