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. The company has done $400k in sales in less than two years and had an early test deal with a local supermarket chain that they were massively overperforming on. in 2012 sales and $2M in income.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

Gust

JUNE 7, 2014

Every investment round in a company is made on the basis of extensivepaperwork (often upwards of 100 pages in total) specifying *precisely* what happens when it comes time to pay out the proceeds (if any) from the sale or dissolution of the company. 5) Senior Preferred Stock and warrants. 6) Any preference multiple on (5).

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

Feld Thoughts

SEPTEMBER 27, 2011

In this case, the convertible debt document doesn’t allow the debt to convert into anything, but at the same time mandates that upon a sale the debt must be paid off. If it’s not a stock deal, then one normally sees one of the above scenarios. So the lenders don’t see any of the upside on the acquisition. Typical language follows.

Conversion 96

Conversion Sales Later Stage Preferred Stock 96

ReadWriteStart

JUNE 1, 2020

The shares given out can either be common stocks or preferred stocks. ? Debt investment. Instead of funding, you pay the investors a structured royalty, which is a portion of the sales. Equity investment is the most popular and most talked-about avenue for startup funding. These are also another form of funding.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Startup Professionals Musings

FEBRUARY 8, 2019

In addition, many corporations have quarterly filing requirements, or even monthly ones if you have payroll taxes, sales taxes, or state filing requirements. 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.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

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

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

Berkonomics

MARCH 8, 2018

The option price should be set by appraisal under IRS rule 409a, and certainly should be low enough to recognize that common stock options are not worth as much as preferred stock, given the many preferences of the latter.

Early Stage 102

Early Stage Vesting Stock Options Preferred Stock 102

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.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

Startup Professionals Musings

SEPTEMBER 26, 2015

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. Investors typically demand preferred stock, to give themselves certain voting and liquidation privileges over later shareholders. Even founder’s shares are common stock.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

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. (For more on working with startup lawyers, see Mark Suster’s classic post, How To Work With Lawyers At A Startup.).

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

Berkonomics

JULY 23, 2020

Sometimes the end game or sale of the company is not a happy event. Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment. There are some questions a distressed sale brings to mind. Investor notes vs. stock late in the game.

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62

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

Startup Company Lawyer

MARCH 14, 2010

To differentiate it from typical “Series A&# preferred stock, which comes with certain expectations with regard to rights. There is no real rule to what a particular series of preferred stock is called. Co-sale rights. Changes in preferred and merger/sale of assets only. Voting agreement.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Steve Blank

OCTOBER 24, 2017

This required a repeatable and scalable sales process, which required a professional sales staff and a product stable enough that customers wouldn’t return it. In the last decade, as the time startups have spent staying private has grown longer, secondary markets – where people can buy and sell pre-IPO stock — have emerged.

Founder 245

Founder Technical Review CTO Hire IPO 245

Startup Professionals Musings

MAY 18, 2015

Make sure the government waits for a stock sale to collect taxes. Facilitate an upgrade of founder’s common to founder’s preferred. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

MARCH 11, 2013

In addition, corporations have quarterly filing requirements, and even monthly ones, if you collect sales taxes and hire employees. For example, you and your partner may be perfectly happy with an LLC, but venture capital or Angel investors may insist on having “preferred” stock, forcing an upgrade to a C-Corp.

LLC 234

LLC Nevada Delaware Limited Liability Company 234

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

The Startup Lawyer

JANUARY 10, 2012

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., founders, option holders, etc.).

Liquidation Preference 73

Liquidation Preference Pre-Money Valuation Participating Preferred Preferred Stock 73

The Startup Lawyer

MARCH 1, 2010

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. It also scales back the right of first refusal and jettisons the co-sale right.

Preferred Stock 79

Preferred Stock Term Sheet Redemption Registration Rights 79

Berkonomics

DECEMBER 20, 2018

These are your candidates, because they are companies already absorbing much or all the marketing expense necessary to make sales of your invention. Starting next week, we’ll examine the process and advantages of raising money using various financial tools from notes to preferred stock to other more esoteric tools.

IP 54

IP Intellectual Property Investment Bankers Product 54

Feld Thoughts

JULY 27, 2011

Series A Preferred Stock Purchase Agreement. Co-Sale Agreement. As a step in the right direction, Jason and I decided to open source our Foundry Group form legal documents. You can find them on the Ask the VC Resources page. Included are our standard forms for the following: Series A Term Sheet. Investor Rights Agreement.

Term Sheet 136

Term Sheet Preferred Stock Merger Venture Capital 136

Berkonomics

DECEMBER 20, 2018

These are your candidates, because they are companies already absorbing much or all the marketing expense necessary to make sales of your invention. Starting next week, we’ll examine the process and advantages of raising money using various financial tools from notes to preferred stock to other more esoteric tools.

IP 48

IP Intellectual Property Investment Bankers Product 48

The Startup Lawyer

FEBRUARY 13, 2012

The convertible note interest should also accrue until the note converts into equity or is paid out at the sale of the company. 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

Both Sides of the Table

MARCH 21, 2010

If you simply to a revenue number (say hitting $1 million in sales) and they hit it in year 1 then you’ve lost your carrot for year 2. While I’m a huge believer that sales bonuses should always be uncapped, I think capping PBW’s is a good idea. million in sales. million in sales (e.g.

Warrant 298

Warrant Dilution Startup Stock Options 298

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. While some companies may use it as a means of paying employees a lower salary upfront, it’s very rarely offered as a complete replacement to receiving a regular compensation package.

Equity 60

Equity Employee Stock Options Vesting 60

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

ithacaVC

DECEMBER 14, 2011

Specifically, “too much” liquidation preference (I will use “LP” for liquidation preference). As most of you probably know, LP is one of the fundamental economic attributes of preferred stock that preferred shareholders enjoy.

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

Berkonomics

AUGUST 29, 2013

Sometimes the end game or sale of the company is not a happy event. Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment. There are a number of questions a distressed sale brings to mind.

Delaware 66

Delaware Liquidation Preference Liquidity Event Preferred Stock 66

Startup Company Lawyer

JANUARY 31, 2011

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.).

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

The Startup Lawyer

MARCH 1, 2010

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. It also scales back the right of first refusal and jettisons the co-sale right.

Preferred Stock 40

Preferred Stock Term Sheet Redemption Registration Rights 40

ithacaVC

FEBRUARY 23, 2011

As the investors’ aggregate liquidation preference (ALP) increases typically the need for a MCOP also increases. The ALP is the total amount of $ that preferred stock holders are owed on a sale of the company under their liquidation preferences. It is not uncommon for the MCOP to kick in from dollar one.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

Berkonomics

MAY 22, 2014

The sale of equity in private companies is regulated by the Securities Act of 1933, which requires that the company either register with the SEC or meet one of several exemptions (Regulation D). Bill Payne has been actively involved in angel investing since 1980, funding over 50 companies and mentoring over 100 more.

Early Stage 79

Early Stage Accredited Investor SEC Private Placement 79

Lightspeed Venture Partners

OCTOBER 1, 2012

The company did $1M in sales last year, 90% from wholesale, and had a 10% profit margin. They wanted to get to $10M in sales and then get bought by a big food company. The sales history is anemic, but perhaps the biggest asset that the company has is a trademark for Rockbands in the apparel field. pre money valuation).

Pre-Money Valuation 158

Pre-Money Valuation Valuation Participating Preferred Preferred Stock 158

Gust

OCTOBER 21, 2011

For convertible notes, the only liquidity event we need be concerned with is an acquisition of the startup in the near future, before the maturity date; otherwise, the notes will convert to equity of one kind or another, and the eventual sale of that equity (in a public offering, acquisition, or private sale) is a different subject for another day.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

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. What happens in a sale or acqui-hire? So they'll feel cheated. Is there way around this?

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

Agile VC

FEBRUARY 28, 2013

increasing dividends or issuing preferred stock). Hungary probably wouldn’t sell their sovereignty and entire economy for 1x sales, but Apple has no debt so they could probably lever the deal and borrow money on top of $137 billion in equity.

Hungary 168

Hungary Dividend Vertical Preferred Stock 168