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

Preferred Stock 28

Preferred Stock Stock Finance Participating Preferred 28

Gust

NOVEMBER 28, 2023

The principal roles of the lead investor was to negotiate the terms of an investment with the founder of the startup. When a corporation is established, its ownership is divided into pieces called shares of common stock. That’s what you as a founder will have, which is why it’s also known as founders’ stock. Here’s why.

Due Diligence 91

Due Diligence Term Sheet Common Stock Preferred Stock 91

Startup Professionals Musings

JANUARY 15, 2021

Even though initial stock has no value or market, it is extremely valuable in dividing entity ownership between multiple co-founders, commensurate with their investment, contribution and role. Startup owners need to assume a three to five year wait for a liquidity event, such as acquisition or going public, before they can cash out.

Vesting 298

Vesting Dilution Stock Founder Vesting 298

Startup Professionals Musings

NOVEMBER 30, 2015

A C-corporation is more complex and expensive, and is recommended only if you expect to pitch to professional investors who demand preferred stock, or to more than 100 potential shareholders. Very few individuals have the skills and energy to build a startup alone. Find a partner and core team early to supplement your expertise.

Intellectual Property 120

Intellectual Property Entrepreneur Preferred Stock Stealth 120

YoungUpstarts

JUNE 26, 2020

by Rizwan Virk, author of “ Startup Myths and Models: What You Won’t Learn in Business School “. If you are building a startup, you’ll find no shortage of people who are willing to give you advice, particularly when it comes to raising financing. I used to think a valuation was kind of like a stock price of a public company.

Finance 205

Finance Silicon Valley Valuation Startup 205

Both Sides of the Table

JULY 22, 2010

Things like “ participating preferred stock &# in legalese unsurprisingly never actually call out, “hey, this is the participating preferred language.&# We got a3x participating liquidation preference with interest (not participating with a 3x cap, but 3x participating. 4 * $4 million) and not $4 million.

Valuation 405

Valuation Liquidation Preference Pre-Money Valuation Term Sheet 405

Steve Blank

APRIL 26, 2022

At the turn of the century after the dotcom crash, startup valuations plummeted, burn rates were unsustainable, and startups were quickly running out of cash. Some even insisted that all prior preferred stock had to be converted to common stock. You can do another startup again with your head held high.

Cram Down 404

Cram Down Founder Venture Capital Recapitalization 404

Startup Company Lawyer

AUGUST 31, 2012

Over the past few years, convertible debt has emerged as a quick and inexpensive method for startup companies to raise money from angel investors and early stage venture funds. ” As a result, Ted introduced the Series Seed preferred stock documents as an alternative to convertible debt for early stage investments.

Convertible Security 73

Convertible Security Equity Security Preferred Stock 73

Startup Professionals Musings

SEPTEMBER 26, 2015

Perhaps they're way off in their valuation (usually far too high), or paralyzed by fear at seeing the other terms, because they have no idea what's normal, and what's worth a fight to the death (their startup's). In very early startups, which have no valuation, the term sheet may specify a convertible note.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Startup Professionals Musings

MARCH 11, 2013

If you aren’t so sure, need something fast, or need to keep your costs low, then an LLC is the best legal and taxable entity to facilitate your startup. Incorporate your startup after the business plan, but before you spend a dollar on product development. Every startup business needs annual tax return coverage.

LLC 234

LLC Nevada Delaware Limited Liability Company 234

Startup Professionals Musings

MAY 18, 2015

Even though initial stock has no value or market, it is extremely valuable in dividing entity ownership between multiple co-founders, commensurate with their investment, contribution and role. Startup owners need to assume a three to five year wait for a liquidity event, such as acquisition or going public, before they can cash out.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

JANUARY 29, 2018

Typically, vesting in startups occurs monthly over four years, starting with the first 25 percent vesting only after a participant has satisfied commitments for at least 12 months (one year cliff). To retain control of your business, you need to reclaim stock shares from anyone leaving the startup for any reason.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

David Teten

MARCH 14, 2018

I’ve listed a few more below which require meaningful startup and ongoing costs. Venture studios work as co-founders with a founding team, with the larger ones assigning dedicated internal teams for each startup idea (e.g., Typically they get cofounder common equity, in addition to the preferred stock that a conventional VC gets.

Private Equity 60

Private Equity Venture Capital Equity Cofounder 60

Both Sides of the Table

JULY 29, 2010

Mike Stern (wasn’t sure which one so leave a comment if it’s you): Q: “is it possible to sell your startup without venture investment if the company has big traction and a large user base?&# The downside is that people need to buy their stock. This question runs from about minute 2 – minute 8. Do it early.

Venture Capital 282

Venture Capital Term Sheet Valuation Stock Options 282

Startup Professionals Musings

FEBRUARY 8, 2019

File an 83(b) election with the IRS within 30 days of founding the company, while the market value of your startup is essentially zero. Failing to file or waiting to incorporate until a first investor arrives could lead to a nasty tax bill in the middle of startup rollout when you can least afford it.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Steve Blank

APRIL 10, 2019

VC’s have just changed the ~50-year old social contract with startup employees. In doing so they may have removed one of the key incentives that made startups different from working in a large company. For most startup employee’s startup stock options are now a bad deal. Why Startups Offer Stock Options.

Stock Options 333

Stock Options Stock Vesting Common Stock 333

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

VC Cafe

OCTOBER 23, 2010

B ack in March, Andreessen Horowitz and Fenwick & West, LLP published a series of documents that would help structure early stage investments in startups. Preferred Stock Purchase Agreement Series Seed Form SPA. The documents have since been used in many deals already according to the site, SeriesSeed.

Early Stage 80

Early Stage Term Sheet Preferred Stock Equity 80

Scott Edward Walker

APRIL 9, 2012

Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook. ii) why are convertible notes issued instead of shares of common or preferred stock?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Scott Edward Walker

JUNE 9, 2019

Accordingly, I thought it would be helpful for founders to discuss these rights and to point out the problems they create for startups. Over the past few weeks, two of my clients have received financing term sheets in which the investors requested super pro rata rights. Pro Rata Rights.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56

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

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

View from Seed

DECEMBER 4, 2014

Editor’s note: Understanding how to divide founder equity at a startup can be tricky, even to the point of reaching emotional riffs between founders. 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.

Equity 315

Equity Founder Sweat Equity Cofounder 315

www.quora.com

JANUARY 16, 2011

Find Questions, Topics and People Add Question Add Question Venture Capital Venture Capital Term Sheets Startups Term Sheets What are examples of good startup term sheets? Back in March, Andreessen Horowitz and Fenwick & West, LLP published a series of documents that would help structure early stage investments in startups.

Term Sheet 41

Term Sheet Startup Angel Investor Wiki 41

Both Sides of the Table

MARCH 21, 2010

This is part of my ongoing series on Startup Advice. As startup entrepreneurs we all want to work with them because having their name as reference clients makes it so much easier for marketing, PR, selling to other customers, fund raising and even recruiting. Make the warrants for common stock and not preferred stock.

Warrant 298

Warrant Dilution Startup Stock Options 298

ithacaVC

APRIL 25, 2014

This cap table can be used by a pre-funded startup and then a financing can be layered in. The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). Dealing with VCs Management Startup Life' Here are things to note: 1.

Cap Table 79

Cap Table Preferred Stock Pre-Money Valuation Liquidation Preference 79

Startup Professionals Musings

AUGUST 1, 2016

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Being first to market is not a strong competitive argument for startups, since larger existing players can easily overrun this position. Ask only for the money you can justify.

Due Diligence 120

Due Diligence Intellectual Property Preferred Stock Seed Stage 120

View from Seed

OCTOBER 15, 2014

Over the summer, based on feedback from our portfolio and the broader startup community, NextView created pre-formatted board deck templates for seed-stage startups — part of our Growth Guides series. A seed-stage mobile startup’s housekeeping section might look something like this: Section 3: Core Metrics.

Seed Stage 331

Seed Stage Cap Table Metrics Burn Rate 331

Business Plan Blog

NOVEMBER 13, 2013

Most startup founders do not have enough capital to launch their companies and need to raise money at some point. Individual investors who provide financial funding to startups are called ‘Angel Investors.’ Among the most common methods of funding used by startups when raising seed capital is “Convertible Debt Financing.”

Finance 93

Finance Accredited Investor Angel Investor Seed Capital 93

Agile VC

APRIL 17, 2011

AGILEVC My idle thoughts on tech startups. 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

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

Agile VC

DECEMBER 4, 2014

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. As a result, one of the trickier things co-founders tackle is determining the equity split amongst the founding group of individuals.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

David Teten

AUGUST 19, 2019

However, many industry experts question the accuracy of early-stage market data, given many startups are no longer filing their Form Ds. Should Private Startups Be Issuing More Bonds? Startup investors should consider revenue share when equity is a bad fit. After Funding 500 Deals, What Have We Learned? Conferences.

Revenue 60

Revenue Term Sheet Founder Technical Review 60

Both Sides of the Table

JULY 25, 2011

When I first started as a startup CEO in 1999 there were no guides on raising venture capital. 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. Every startup needs the knowledge in this book.

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

ReadWriteStart

APRIL 7, 2011

But recognizing that the funding landscape has changed - more angels, more Web startups - this year the firm conducted its first Angel/Seed Financing Survey. The median amount raised in preferred stock financings was $1.1 million and $600,000 in convertible note financings.

Preferred Stock 115

Preferred Stock Silicon Valley Seed Stage Venture Capital 115

Startup Professionals Musings

MARCH 7, 2015

They know from forums such as Shark Tank on TV that asking for either too much or too little will derail credibility in the eyes of the investor, and leave the entrepreneur with no money and a struggling startup. This is all about setting a credible current value on your startup -- not future value.

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120

Steve Blank

OCTOBER 24, 2017

. — Unremarked and unheralded, the balance of power between startup CEOs and their investors has radically changed: IPOs/M&A without a profit (or at times revenue) have become the norm. The startup process has become demystified – information is everywhere. Not every startup ended up this way. Board Control.

Founder 245

Founder Technical Review CTO Hire IPO 245

ithacaVC

JANUARY 18, 2017

Once in a while I get the question “What do I need to know about investing in a startup?” ” The context is typically where Friend A has asked Friend B to invest in Friend A’s startup business. We all know that startup projections are essentially best guesses, but the model needs to tell a realistic narrative.

Preferred Stock 40

Preferred Stock LLC Startup Security 40

VC Cafe

JUNE 11, 2011

Some of the posts that got my attention this week… 5 Ways To Raise Funds for Your Startup – Mashable brings a good reminder on the ways to raise funding: friends/family/fools, incubators, convertible debt, preferred stock and VC. It was good to see Editd, a London based fashion analytics company on the list.

Preferred Stock 84

Preferred Stock Incubator Stock Analytics 84