Startup Professionals Musings

SEPTEMBER 27, 2023

This is called stock dilution control. While new equity owners always have to get it from someone, actual re-allocation of existing shares should be based on a formula to maximize the value of your remaining founder shares. Facilitate an upgrade of founder’s common to founder’s preferred.

Stock 240

Stock .Net Vesting Founder Vesting 240

Startup Professionals Musings

JANUARY 4, 2020

Ancillary objectives, like retiring existing debt, buying a building or paying salaries to people with equity ownership will not get traction. How much equity ownership are you willing to offer? Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection.

Startup 337

Startup Preferred Stock Exit Strategy Equity 337

Growthink Blog

JANUARY 24, 2011

I get the same question a lot from entrepreneurs raising equity capital (venture capital or angel funding). 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.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

Agile VC

DECEMBER 4, 2014

As a result, one of the trickier things co-founders tackle is determining the equity split amongst the founding group of individuals. Across both the startups I’ve personally been involved in (PayPal and LinkedIn) and the startups in which I’ve been an investor, I’ve seen a broad range of co-founder equity splits.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Both Sides of the Table

AUGUST 30, 2010

Convertible debt is an investment that “converts&# into equity in the future usually at a discount to your next funding round price and sometimes has a “cap&# (maximum price). a priced/valued preferred stock financing)?&#. prefer equity to convertible debt): If you’re an early stage investor (e.g.

Equity 319

Equity Early Stage Angel Investor Valuation 319

Early Growth Financial Services

FEBRUARY 3, 2015

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. management). Participating versus non-participating: what’s the difference?

Preferred Stock 28

Preferred Stock Stock Finance Participating Preferred 28

Startup Professionals Musings

JANUARY 15, 2021

This is called stock dilution control. While new equity owners always have to get it from someone, actual re-allocation of existing shares should be based on a formula to maximize the value of your remaining founder shares. Facilitate an upgrade of founder’s common to founder’s preferred.

Vesting 298

Vesting Dilution Stock Founder Vesting 298

www.mattbartus.com

SEPTEMBER 24, 2011

Equity for Consultants – Keep it Simple! posted Feb 3 in Equity , People issues. for every hour works, consultant accrues [hourly wage]in debt that will convert to equity in the next round). First, you’d probably want them to receive common stock, not preferred stock (which is the likely next round).

Equity 40

Equity Vesting Silicon Valley Intellectual Property 40

Steve Blank

APRIL 26, 2022

Some even insisted that all prior preferred stock had to be converted to common stock. Venture capital, like most private equity, is an unregulated financial asset class – anything goes. For existing investors, sometimes it was a “pay-to-play” i.e. if you don’t participate in the new financing you lose.

Cram Down 404

Cram Down Founder Venture Capital Recapitalization 404

David Teten

AUGUST 19, 2019

I’ve been a traditional equity VC for 8 years, and I’m now researching new business models in venture capital. 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. . Here are four templates you can use for better understanding RBI: .

Revenue 60

Revenue Term Sheet Founder Technical Review 60

The Next Web

JUNE 17, 2015

Giving up equity in your business, as an alternative to paying cash, often sounds like a great idea to cash-starved startups. But, giving up equity in your business is often a very big decision, and can come at a long-term price, both financially and operationally. I wouldn’t be giving out equity to any and all service providers.

Equity 60

Equity Valuation Preferred Stock Common Stock 60

Startup Professionals Musings

JANUARY 29, 2018

Even though initial stock has no market value today, it is extremely valuable in dividing equity ownership between co-founders, investors, and early partners. Otherwise, later stock value growth may be lost or used against you before you can capitalize on it. Buying back stock on the open market may cost a huge premium.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

Startup Professionals Musings

SEPTEMBER 26, 2015

Investors, on the other hand, look at the money figure, and even the equity, as the easy part. This is a loan with an option to convert to equity at a later date. 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

Berkonomics

FEBRUARY 3, 2022

There are clauses in preferred stock investment agreements allowing the investor in many cases to “put” the shares back to you at the purchase price plus dividends or more after a period, usually five years, if no effort is made to find a buyer or begin the IPO process.

Liquidity Event 62

Liquidity Event Preferred Stock Dividend Equity 62

Early Growth Financial Services

OCTOBER 2, 2014

Lately I‘ve been getting more and more questions about convertible equity: “What is it?” In short, convertible equity is a form of financing that gives investors the right to preferred stock once a triggering event occurs. and “Should I use it?” So what’s that mean? of all financings.

Equity 44

Equity Preferred Stock Seed Stage Founder 44

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

Growthink Blog

MAY 10, 2012

When seeking equity investments, the source of capital is, for the most part, tied to the stage of capital being raised. You see, equity capital is raised in stages or rounds. Mezzanine Financing Most companies that raise equity capital and are eventually acquired or go public receive multiple rounds of financing first.

Equity 88

Equity Mezzanine Later Stage Venture Capital 88

Berkonomics

MARCH 8, 2018

Give one percent equity to each outside board member vesting over four years of service. Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service. Here is my best advice, based upon many boards and many years.

Early Stage 102

Early Stage Vesting Stock Options Preferred Stock 102

Gust

JUNE 7, 2014

5) Senior Preferred Stock and warrants. 6) Any preference multiple on (5). 7) Junior Preferred Stock and warrants. 8) Any preference multiple on (7). 9) Common Stock (including any Preferred that converted to Common, any exercised options, and all Founders stock) and Common stock warrants.

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

www.payne.org

SEPTEMBER 22, 2011

Startup Equity For Employees. 2 Stock Classes: Common and Preferred. 5 Stock vs Options. 6 Founders / Restricted Stock. 7 Salary vs Equity. Important disclaimer: Ive got experience negotiating stock compensation packages from both sides of the table. Your offer will almost surely be for common stock.

Equity 56

Equity Employee Vesting Preferred Stock 56

Gust

SEPTEMBER 29, 2011

For a traditional VC financing round structured as a sale of preferred stock, the best resources I can recommend are the Term Sheet Series by Brad Feld and Jason Mendelson and Startup Company Lawyer by Yokum Taku. Others have discussed in detail the pros and cons of convertible debt vs. seed equity rounds.

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

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. Promissory notes come before any equity, and most late equity investments come before early equity investments, even of the same class of security.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62

Startup Company Lawyer

MARCH 14, 2010

After the recent announcement of the Series Seed Financing documents by Marc Andreesen, Brad Feld points out that there are now four sets of “open source&# equity seed financing documents: TechStars Model Seed Funding Documents (by Cooley). Y Combinator Series AA Equity Financing Documents (by WSGR). under $500K).

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Scott Edward Walker

APRIL 9, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? Part 3 will cover certain special issues, such as (i) what happens if the startup is acquired prior to the note’s conversion to equity? (ii) ii) what happens if the maturity date is reached prior to the note’s conversion to equity?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Startup Professionals Musings

MARCH 7, 2015

Ancillary objectives, like retiring existing debt, buying a building or paying salaries to people with equity ownership will not get traction. How much equity ownership are you willing to offer? Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection.

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120

VC Cafe

OCTOBER 23, 2010

While there aren’t many issues to negotiate in simple equity financing at that stage, there’s been some debate in the venture capital and angel community on whether startups should use series seed documents or capped convertible debt. Preferred Stock Purchase Agreement Series Seed Form SPA.

Early Stage 79

Early Stage Term Sheet Preferred Stock Equity 79

Agile VC

APRIL 17, 2011

Obviously most of these employees are working hard primarily for equity upside compensation, but Kayak’s personnel costs are roughly $200K/head so the company is highly productive on a per employee basis. One can infer valuations based on per share prices of preferred stock and oustanding common shares (~5.3M

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

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. Businesses that plan to use equity incentives (e.g. stock options) to attract and retain talent often prefer to operate as C corps. such as incentive stock options. citizen/resident stockholders.

LLC 61

LLC Stock Options Preferred Stock Stock 61

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

DECEMBER 20, 2018

Since I am a proponent of using equity as a tool and he is so much opposed, this week it is his turn to make the case. Do I understand the royalty replaces the need for equity investors ? What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity?

IP 54

IP Intellectual Property Investment Bankers Product 54

Startup Professionals Musings

MAY 18, 2015

This is called stock dilution control. While new equity owners always have to get it from someone, actual re-allocation of existing shares should be based on a formula to maximize the value of your remaining founder shares. Facilitate an upgrade of founder’s common to founder’s preferred.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Both Sides of the Table

SEPTEMBER 5, 2012

This time by the efforts of Adeo Ressi to introduce a new kind of structure called “ convertible equity.” 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.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Berkonomics

DECEMBER 20, 2018

Since I am a proponent of using equity as a tool and he is so much opposed, this week it is his turn to make the case. Do I understand the royalty replaces the need for equity investors ? What are the advantages of using royalties instead of raising investor funds, other than no dilution of equity?

IP 48

IP Intellectual Property Investment Bankers Product 48

The Startup Lawyer

JUNE 22, 2010

The main feature of the convertible note is that the debt investment made by the angel investor will typically later convert into equity. For this article, let’s assume this equity is the Series A Preferred Stock purchased by a venture capital fund. Convertible Note Discount. Incentive Misalignment.

Pre-Money Valuation 82

Pre-Money Valuation Angel Investor Preferred Stock Valuation 82

ithacaVC

JUNE 29, 2018

Our portfolio companies routinely adopt carve out plans when the founders/employees equity values are not likely to provide enough incentive to get a company to an exit. This typically results when the company has raised a lot of money and the preferred stock liquidation preference would absorb an out sized portion of the exit proceeds.

Management 40

Management Liquidation Preference Preferred Stock Dilution 40

ReadWriteStart

JANUARY 28, 2022

With the rise of startups and growing businesses , it has become more critical for investors to have a thorough understanding of equity to be aware of all of the advantages they are receiving from the companies they have invested in. What is Company Equity? Types of equity. Common stock. Preferred shares.

Valuation 108

Valuation Equity Warrant Common Stock 108

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. Promissory notes come before any equity, and most late equity investments come before early equity investments, even of the same class of security.

Dividend 48

Dividend Preferred Stock IRR Participating Preferred 48