Startup Professionals Musings

JANUARY 15, 2021

When an entrepreneur first incorporates a business, they may find themselves 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. Facilitate an upgrade of founder’s common to founder’s preferred. In the U.S.,

Vesting 298

Vesting Dilution Stock Founder Vesting 298

Startup Professionals Musings

MARCH 14, 2020

After many years of working with angel investors seriously trying to find new ventures worthy of their hard-earned money, I find their frustration often exceeds that of entrepreneurs sincerely looking for financial help. For seed stage funding, entrepreneurs should be looking to friends and family, crowd funding, and relevant institutions.

Due Diligence 308

Due Diligence Intellectual Property Preferred Stock Seed Stage 308

Startup Professionals Musings

JANUARY 4, 2020

One of the big questions that every entrepreneur struggles with is how much funding they should request from investors in the first round. Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. Are you flexible on the terms of the investment?

Startup 337

Startup Preferred Stock Exit Strategy Equity 337

Both Sides of the Table

JULY 29, 2010

We received so much positive feedback from our This Week in Venture Capital show walking through valuation calculations & term sheets that we decided to do a Q&A show this week to address topics that entrepreneurs want to learn about. on the entrepreneur side of the table) when I raised at too high of a price. This is wrong.

Venture Capital 282

Venture Capital Term Sheet Valuation Stock Options 282

Both Sides of the Table

JULY 25, 2011

tl;dr version: If you’re an entrepreneur or VC or will be working in this industry - buy this. To this day I’m still surprised how few CEOs really understand the differences between 2x liquidation preference and a liquidation preference with a 2x cap. This article originally ran on TechCrunch. Drag along rights?

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

Startup Company Lawyer

AUGUST 31, 2012

Ted Wang believes that the “reason that capped convertible debt is the current market leader is that entrepreneurs have been conditioned over time to believe that convertible debt is (a) faster (b) cheaper and (c) better for them than equity investment.” Why convertible equity is better than preferred stock.

Convertible Security 73

Convertible Security Equity Security Preferred Stock 73

Startup Professionals Musings

JANUARY 29, 2018

It’s great motivation for every entrepreneur to get that value up quickly. Unfortunately, in my years since as a small business advisor, I have seen too many founders squander this asset through a lack of understanding of some basic legal and operational issues, or by handing out nominally “free” stock to the wrong people at the wrong time.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

Startup Professionals Musings

FEBRUARY 8, 2019

A frequent concern I hear from aspiring entrepreneurs is “I have invented a great product, but I have no idea where to start in setting up a company, to avoid all the tax and legal problems I hear about on the news.” Many entrepreneurs follow old shoebox habits in managing expenses until the company launches.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Lightspeed Venture Partners

OCTOBER 7, 2012

Week three’s breakdown covered topics like how hard momentum is to turn around, and how participating preferred stock works. This does neither, so I’m out” Cuban said, “I see you guys not as entrepreneurs but as wantrepreneurs” I agree with him. The entrepreneur was clearly desperate.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

YoungUpstarts

JUNE 26, 2020

The real issue here is that if an entrepreneur comes in to a pitch and goes on and on about how they’re going to build a billion dollar company in just a few years, most investors eyes tend to glaze over. Like Jerry Yang who started Yahoo, as investors we are looking for entrepreneurs who are obsessed with a new technology.

Finance 205

Finance Silicon Valley Valuation Startup 205

David Teten

MARCH 14, 2018

– Build out low-cost force multipliers such as scouts , Advisors, Entrepreneurs in Residence, Venture Partners, and so on. Typically they get cofounder common equity, in addition to the preferred stock that a conventional VC gets. – Create a franchise and license access to it , e.g., the Draper Venture Network.

Private Equity 60

Private Equity Venture Capital Equity Cofounder 60

Startup Professionals Musings

SEPTEMBER 26, 2015

Most entrepreneurs looking for an investor can tell you how much money they need, but few have given much thought to what they are willing to give up for it. For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. Type of stock assigned to the investor.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Gust

SEPTEMBER 29, 2011

The most successful serial entrepreneurs in the world may found three or four, perhaps even eight or ten venture-backed startups over the course of their careers. A term sheet for a convertible note deal may run two or three pages, versus 8-10 pages for a typical Series A Preferred Stock financing.

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

Scott Edward Walker

JUNE 9, 2019

For example, if an investor owns 20% of the equity of a startup on a fully-diluted basis following the closing of a Series A round, it will have the right to purchase 20% of the shares of the preferred stock issued in the subsequent Series B round. This is a huge red flag and founders should push back very hard.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

Berkonomics

FEBRUARY 3, 2022

I also recall vividly one of my first investments where the entrepreneur backed out of a sale to a well-known investment company at the last second, declaring his intention not to sell “his” company. A personal experience that relates. I was able to negotiate a “put” of my shares back to the company at 5x my investment.

Liquidity Event 62

Liquidity Event Preferred Stock Dividend Equity 62

Startup Professionals Musings

AUGUST 1, 2016

After many years of working with angel investors seriously trying to find new ventures worthy of their hard-earned money, I find their frustration often exceeds that of entrepreneurs sincerely looking for financial help. For seed stage funding, entrepreneurs should be looking to friends and family, crowd funding, and relevant institutions.

Due Diligence 120

Due Diligence Intellectual Property Preferred Stock Seed Stage 120

Scott Edward Walker

SEPTEMBER 21, 2011

I’ve been helping entrepreneurs raise capital as a securities lawyer for 17+ years, and there are certain fundamental mistakes that I’ve seen entrepreneurs repeatedly make. Accordingly, I thought it would be helpful to share three basic tips for entrepreneurs in connection with raising capital. This is how the game is played.

Preferred Stock 45

Preferred Stock Angel Investor Entrepreneur Common Stock 45

Scott Edward Walker

APRIL 9, 2012

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. Friends and family are also often issued shares of common stock.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

View from Seed

DECEMBER 4, 2014

In addition to being a co-founder of NextView Ventures, Lee was an early member of PayPal and a founding team member at LinkedIn, so he speaks as both a former entrepreneur and a VC. Below, Lee Hower offers advice for approaching these equity discussions objectively and properly.

Equity 315

Equity Founder Sweat Equity Cofounder 315

Startup Professionals Musings

MAY 18, 2015

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. Facilitate an upgrade of founder’s common to founder’s preferred.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

David Teten

AUGUST 19, 2019

Though RBI will displace some traditional equity VC, its much bigger impact will be to expand the pool of capital available for early-stage entrepreneurs. . Kauffman Foundation: Access to Capital for Entrepreneurs: Removing Barriers. So what is Revenue Based Investing? Revenue-Based Financing: How a Revenue-Based Loan Works.

Revenue 60

Revenue Term Sheet Founder Technical Review 60

Startup Professionals Musings

MARCH 7, 2015

One of the big questions that every entrepreneur struggles with is how much funding they should request from investors in the first round. Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. entrepreneur funding request investors startup stage'

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120

Agile VC

APRIL 17, 2011

Notes: In an IPO preferred share classes are converted into common stock, and liquidation preferences and accumulated but unpaid dividends essentially go away. One can infer valuations based on per share prices of preferred stock and oustanding common shares (~5.3M as of 12/31/09). Author howerl. Read More ».

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

Startup Professionals Musings

MARCH 11, 2013

One of the first questions that I get from many entrepreneurs is “How should I set up my company to minimize my setup costs, tax liabilities, and risk of lawsuits?” Many entrepreneurs don’t realize that the tax entity election doesn’t have to match the legal entity. I’ll offer you a few simple rules of thumb.

LLC 234

LLC Nevada Delaware Limited Liability Company 234

Berkonomics

JANUARY 6, 2022

First, the marginal exit event: Sometimes the end game or sale of the company is not a happy event for the early investors, including the entrepreneur or the founders. 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.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

VC Cafe

OCTOBER 23, 2010

Fred Wilson , Paul Graham and Seth Levine all agree that as an entrepreneur one would prefer uncapped convertible debt to equity, but investors typically won’t go for it. Preferred Stock Purchase Agreement Series Seed Form SPA. Certificate of incorporation Series Seed COI (v 2.0).

Early Stage 79

Early Stage Term Sheet Preferred Stock Equity 79

Agile VC

DECEMBER 4, 2014

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. Once you have the framework, it’s simply a matter of having the conversation and reaching an agreement.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

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

Startup Company Lawyer

MARCH 14, 2010

Founders Institute Plain Preferred Term Sheet (by WSGR – disclaimer, I represent the Founders Institute and was involved in drafting this document). My general opinion is that anything that makes the financing process faster and easier or otherwise educates entrepreneurs is a good thing. (A Why is it called Series Seed?

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Both Sides of the Table

AUGUST 30, 2010

I’ve written about the topic of convertible debt at length before specifically about how angels & entrepreneurs should think about pricing. Clearly this is is a trend and a topic that is interesting entrepreneurs. a priced/valued preferred stock financing)? a priced/valued preferred stock financing)?&#.

Equity 319

Equity Early Stage Angel Investor Valuation 319

K9 Ventures

MAY 14, 2011

This is probably the very first group that an entrepreneur who is starting out may approach for some funding for his or her idea. The founders of these uVC funds are entrepreneurs in their own right – either as people who have founded successful startups before, or as the founders of their own venture funds – which are also startups.

Preferred Stock 125

Preferred Stock Seed Stage Incubator Early Stage 125

Feld Thoughts

JULY 27, 2011

When Jason and I set out to write Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist , we both agreed that we wanted to try to create as useful and durable a reference guide for entrepreneurs interested in raising a round of venture capital as we could. Series A Preferred Stock Purchase Agreement.

Term Sheet 136

Term Sheet Preferred Stock Merger Venture Capital 136

Agile VC

DECEMBER 4, 2014

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. Once you have the framework, it’s simply a matter of having the conversation and reaching an agreement.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Berkonomics

MAY 22, 2014

In most cases, those entrepreneurs choosing to raise capital using PPMs retain specialists (many of whom are lawyers) to write their PPMs – a rather expensive undertaking. Unfortunately, upon completion of the PPM, the first thing that entrepreneurs tend to do is sell shares to friends, family, friends of friends and other acquaintances.

Early Stage 79

Early Stage Accredited Investor SEC Private Placement 79

Berkonomics

OCTOBER 1, 2015

Sometimes the end game or sale of the company is not a happy event for the early investors, including the entrepreneur or the founders. 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.

Dividend 48

Dividend Preferred Stock IRR Participating Preferred 48

Both Sides of the Table

SEPTEMBER 5, 2012

My initial reaction to Adeo when we spoke was that while it may have solved some issues (debt versus equity) it didn’t solve the ones that I’ve been warning entrepreneurs about most loudly. A standard entrepreneur retort I heard back then (2008-09) was “I don’t know what my company is worth now.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Both Sides of the Table

APRIL 14, 2010

It’s meant to be a bit provocative but the reality is that I give this advice to entrepreneurs all the the time and I usually leave the “e&# off of the end. I normally offer this advice in the capacity of really wanting to help entrepreneurs so please bear with me. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289