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Startup Financing: Overview of Preferred Stock

Early Growth Financial Services

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. This post by Ian Engstrand first appeared on Founders Workbench. management).

7 Investor Term Sheet Demands Startups Need Not Fear

Startup Professionals Musings

For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. This is normal and fair to all.

Common Stock vs. Preferred Stock in Venture Funding Transactions

Growthink Blog

The question is whether they need to issue common or preferred stock. If, then the company were to be sold for $5,000,000 (i.e.

Conventional Convertible Preferred vs Participating Preferred Stock

Recent Buzzes - VC Experts, Inc.

What is the difference between Conventional Convertible Preferred (non-Participating Preferred) and Participating Preferred Stock ? How do these effect the outcome for investors when a non-IPO exit is about to happen? See for yourself in these simple examples

Founder Liquidity

K9 Ventures

If there is one piece of advice I would give to the founders of BST, it is to consider selling a part of their personal stock in the company at that stage. 3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity. The concept of the Series FF stock is a good example of this.

Avoid Offensive Liquidation Preferences

The Startup Lawyer

In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., Preferred Stock

Bitesize Weekend – quick reads

VC Cafe

101 bitesize Auto convertible debt Draft funding isn Mashable preferred stock projector screen virtual valley weekend

Is convertible debt with a price cap really the best financing structure?

Startup Company Lawyer

Convertible debt with a price cap seems to be the preferred structure for early-stage financings. A logical alternative to convertible debt is a priced Series A preferred stock financing. Mark Suster does a good job analyzing whether convertible debt is preferable to equity , and concludes that convertible debt is better.

These 8 Disciplines Define A Fundable Entrepreneur

Startup Professionals Musings

Aspiring entrepreneurs often ask me what to do first when starting a business. You shouldn’t try to create a business that hasn’t yet been defined.

Convertible Debt – Early Versus Late Stage Dynamics

Ask The VC

In these cases, one saw terms like liquidations preferences and in some cases changes to board and / or voting control come into play. Once again we continue our series on convertible debt deals. Today’s subject is early versus late stage dynamics. Thus, these deals were called “bridge financings.”.

Convertible Debt – Other Terms

Ask The VC

Liquidation Preferences : Every now and then you’ll see a liquidation preference in a convertible debt deal. It works the same as it does in a preferred stock deal – the investors get their money back first, or a multiple of their money back first, before any proceeds are distributed to anyone else.

Convertible Debt – Warrants

Ask The VC

There are numerous different ways to calculate this, such as: $20,000 worth of common stock at the last value ascribed to either the common or preferred stock; $20,000 worth of the last round of preferred stock at that’s rounds price of the stock; or. In this case the investor will get a warrant for $20,000.

What is convertible equity (or a convertible security)?

Startup Company Lawyer

Other folks, such as Mark Suster, have also written about whether convertible debt is preferable to equity. Fred Wilson has been openly critical of convertible debt , and prefers priced equity rounds. Manu Kumar has also indicated that he prefers priced equity rounds to convertible debt. Background. The problem. The solution.

8 Ways To Maximize The Value Of Your Startup Stock

Startup Professionals Musings

Make sure the government waits for a stock sale to collect taxes. Spread stock issuance over an earning period. In the U.S.,

Stock 82

Avoid New Venture Shortcuts That Scare Away Investors

Startup Professionals Musings

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones.

4 Things Every Founder Should Know About Convertible Equity

Early Growth Financial Services

In short, convertible equity is a form of financing that gives investors the right to preferred stock once a triggering event occurs. Lately I‘ve been getting more and more questions about convertible equity: “What is it?” and “Should I use it?” So I figured now’s the right time to answer a few questions and fill in some blanks.

Knowledge Is Power: Convertible Note Financing Terms, Part I

Gust

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. See my blogroll for links to many of the best resources.) Knowledge is power. There are two principal reasons.

How to Divide Founder Equity: 4 Criteria to Discuss

View from Seed

You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently. Experience/Seniority/Role.

Equity 108

Raising Capital? 3 Tips for Entrepreneurs – Part 2

Scott Edward Walker

What about issuing shares of common stock? This is part two of a three-part series, which was originally published on The Huffington Post.

8 Questions To Help Set Expectations With Investors

Startup Professionals Musings

Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection.

New Survey from Fenwick & West Looks at Angel Funding Landscape

ReadWriteStart

The median amount raised in preferred stock financings was $1.1 Sponsor. million and $600,000 in convertible note financings. Discuss.

Model Cap Table

ithacaVC

The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). The larger the preferred stock liquidation preference the larger the impact of participating preferred. Here are things to note: 1. So… enjoy the model. Thanks.

Knowledge Is Power: Convertible Note Financing Terms, Part II

Gust

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 ” ).

Model Series Seed Docs

The Startup Lawyer

The board is set up to consist of 3 directors: 1 director elected by the common (founders); 1 directors elected by the preferred (investors); 1 “independent&# director (i.e., 2) Series Seed Stock Preferred Stock Purchase Agreement. Tags: Preferred Stock documents lawyer seed funding 4) Term Sheet.

Model Series Seed Docs

The Startup Lawyer

The board is set up to consist of 3 directors: 1 director elected by the common (founders); 1 directors elected by the preferred (investors); 1 “independent&# director (i.e., 2) Series Seed Stock Preferred Stock Purchase Agreement. Tags: Preferred Stock documents lawyer seed funding 4) Term Sheet.

An Alternative to Board Decks Some Seed VCs Actually Prefer

View from Seed

You should still work with your board about what format they prefer.). Included in that deck was something that caught some folks by surprise.

Punch & Pie: How Should Co-Founders Divide Equity?

Agile VC

You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently.

How to Pick Advisors

How to Change the World

Should we sell common or preferred stock to investors? Answer you’re looking for: “Preferred.”. All they knew how to do was code.

Nobody Is Crying For You When You Are Worth Billions

A VC : Venture Capital and Technology

When an investor like Fidelity puts tens of millions of cash into Spotify at a $3bn valuation, they are not buying publicly traded common stock that will go up and down with the value of the company. I did a talk with Bill Werde at Billboard's FutureSound conference a few weeks ago. The entire talk is online (in two parts) here.

Model Seed Funding Doc Myths

The Startup Lawyer

A variety of model startup seed funding docs have been released in the past year or so: TechStars Series AA Preferred , YCombinator Series AA Preferred , and TheFunded Founder Institute’s Plain Preferred. Tags: Preferred Stock legal documents seed funding startup Startup Lawyer However, most (all?)

Model Seed Funding Doc Myths

The Startup Lawyer

A variety of model startup seed funding docs have been released in the past year or so: TechStars Series AA Preferred , YCombinator Series AA Preferred , and TheFunded Founder Institute’s Plain Preferred. Tags: Preferred Stock legal documents seed funding startup Startup Lawyer However, most (all?)

Venture Capital Term Sheets – Redemption Rights

Scott Edward Walker

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?

What are the terms of Yuri Milner/SV Angel’s Start Fund $150K investment into Y Combinator companies?

Startup Company Lawyer

Optional maturity conversion : into Series AA Preferred Stock based on a $5M valuation. Please note that these are generally the terms of the Series AA Preferred Stock financing documents that Y Combinator previously published.). I had a chance to review the terms of the convertible debt documents used in the transaction.

Series Seed Documents for Early Stage Startups – V2

VC Cafe

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. The documents have since been used in many deals already according to the site, SeriesSeed.

Investor Nomenclature and the Venture Spiral

K9 Ventures

Common Stock. Convertible Note or Preferred Stock. Convertible Note or Preferred Stock. Preferred Stock.

Anatomy of a Term Sheet: Conversion and Anti-dilution

VC Ready Blog

In this post we look at when an investor’s preferred stock may or must convert to common stock, and how the conversion ratio may be adjusted in certain circumstances. Preferred stock typically converts to common stock either: (a) at the option of the stockholder (“Optional Conversion”); or. (b)

SEC Approves NASDAQ's BX Venture Market- a New Listing Option for Smaller Companies

Recent Buzzes - VC Experts, Inc.

Companies will be able to list common and preferred stock, ordinary shares and ADRs, trust and limited partnership interests, units, rights and warrants. The NASDAQ OMX Group has received approval from the SEC to launch its new listing market, the BX Venture Market. NASDAQ expects to launch the BX Venture Market during 2012

O’Donnell: Live In The Problem

Ask The VC

Today’s runner up is Fred Wilson’s MBA Monday post on Financing Options: Preferred Stock. Our new motto over here at Ask the VC is “we read all the VC blog posts so you don’t have to.&# We’ll give you the best one of the day with a quick summary and – if there are runner ups, include them also.

Want to Know How VC’s Calculate Valuation Differently from Founders?

Both Sides of the Table

Term Sheet Overview : The second most important economic term in the term sheet other than price is “liquidation preference.&# Normal.

Convertible Note Seed Financings: Founders Beware!

Scott Edward Walker

What Happens If a Startup is Acquired Prior to the Note’s Conversion to Shares of Preferred Stock? 3) Premium (Intermediate Approach).