Startup Company Lawyer

AUGUST 31, 2012

In fact, the form of convertible debt documents that YC recommends that their companies use has been recently revised to include a provision that forces a conversion of the debt into a pre-negotiated Series AA preferred stock upon the consent of a majority in interest of the convertible note holders.

Convertible Security 73

Convertible Security Equity Security Preferred Stock 73

Both Sides of the Table

SEPTEMBER 18, 2014

These are all real conversations. What if when you have that conversation you don’t agree? If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. I have them all the time. I’m bored of it. ” Simple. And so forth.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Both Sides of the Table

APRIL 14, 2010

Liquidation preference is the amount of money that an investor gets paid before the common stock (e.g. It also gets the new investor concerned that management (common stock holders) will not be incentivized because they realize that the investors will take most of the money unless there is a big upside scenario.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Up and Running

SEPTEMBER 19, 2017

For a business that anticipates needing, for example, $500,000 in startup capital, that means that best-case scenario Klemm can expect to give up half of his business’s common stock (and an even larger percentage of control of the business once the deal’s fine print provisions are considered).

Private Equity 94

Private Equity Pre-Money Valuation Equity Startup 94

Agile VC

DECEMBER 4, 2014

But delaying or avoiding the conversation often results in it being more awkward than it needs to be. You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently. 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

Both Sides of the Table

SEPTEMBER 8, 2012

The way it works structurally is that you issue stock (let’s say it’s at $1 / share) and for the first 150,000 shares you also grant a warrant of common stock equal to $1 for every share they buy. This is occasionally how convertible notes are structured at the time of conversion anyways.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

Startup Professionals Musings

SEPTEMBER 14, 2010

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. This clause attempts to protect the conversion price of stock of angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

Startup Professionals Musings

JANUARY 27, 2012

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. This clause attempts to protect the conversion price of stock of Angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 223

ithacaVC

APRIL 5, 2011

One rule of simple cap tables is to issue “normal” stock to founders (common stock only) and investors (typically preferred stock, but sometimes common stock to early friends and family). I hope the investor agrees.

Common Stock 45

Common Stock Stock Cap Table Preferred Stock 45

www.inc.com

SEPTEMBER 24, 2011

Graham also pushes for common stock, the right to participate in future funding rounds to preserve the size of the stake, and a guaranteed seat on the board. In most cases, Arizona Bays management team asks for a stake of at least 20 percent. Graham liked the idea. Arizona Bay would also get one of three board seats.

Arizona 40

Arizona Equity Iowa Venture Capital 40

venturehacks.com

MARCH 21, 2008

If an advisor can uncork a million dollars of your company’s latent value with 15 minutes of conversation or a single introduction, you should pay him appropriately. 0.25% of a company’s post-Series A stock. Advisory shares are normal common stock. Normal advisors The normal advisor gets 0.1%-0.25%

Advisory Board 44

Advisory Board Cap Table Vesting Equity 44

Scott Edward Walker

JUNE 9, 2011

Conversion Rights What Are Conversion Rights? As many of you know, VC investors are typically issued shares of preferred stock, not common stock. A conversion right is the right to convert shares of preferred stock into shares of common stock. What Are Optional Conversion Rights?

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

Up and Running

AUGUST 17, 2015

C Corp versus LLC, non-competes, liquidation preferences, preferred versus common stock, and so on). During our fundraising conversations, I’ve been constantly amazed by the percent of people I’ve spoken to in the venture capital community that have MBAs.

Entrepreneur 60

Entrepreneur Cofounder Angel Investor eCommerce 60

Austin Startup

JULY 6, 2018

More traditional and comprehensive programs often require 5–8% of common stock, but often provide between $20K and $100K up-front as well. Comparing Startup Accelerators was originally published in Austin Startups on Medium, where people are continuing the conversation by highlighting and responding to this story.

Dilution 48

Dilution Startup Technical Review Equity 48

The Startup Lawyer

MARCH 17, 2010

4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 7) Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations. (8) Here’s what I’d do in the beginning: Incorporation. (1) 1) Entity Choice: Corporation or Corporation. (2) Hell Yes. (9)

Accredited Investor 112

Accredited Investor Delaware NDA Vesting 112

The Startup Lawyer

MARCH 17, 2010

4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 7) Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations. (8) Here’s what I’d do in the beginning: Incorporation. (1) 1) Entity Choice: Corporation or Corporation. (2) Hell Yes. (9)

Accredited Investor 112

Accredited Investor Delaware NDA Vesting 112

Gust

OCTOBER 17, 2011

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. This clause attempts to protect the conversion price of stock of angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 158

keen.io

FEBRUARY 5, 2013

Kirk dropped an even-bigger weight onto the conversation when he added, “You’re asking me to give up about a half a million dollars.” I asked for equity in the form of restricted stock instead of common stock (In my research, I found there is a significant long-term gains tax advantage. Kyle was quick to respond.

Salary 50

Salary Equity Startup San Francisco 50

Both Sides of the Table

MARCH 21, 2010

If the goals are achievable but the partner isn’t performing you have a “carrot&# to use in difficult conversations. Make the warrants for common stock and not preferred stock. This is the same as with employee stock options. Common Mistakes. Have minimums but a sliding scale.

Warrant 298

Warrant Dilution Startup Stock Options 298

Tim Keane

JANUARY 12, 2010

.   This is perceived by some investors as a way to assure that the founders are in the game for the long run. ·       Conversion provisions allowing preferred to convert to common if they choose or upon the closing of an IPO at a specified price.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Gust

DECEMBER 18, 2013

The other factors bearing on the advisability of doing a convertible note are that it is debt, not equity (good for the investor, because in a down liquidation scenario the note gets paid out ahead of anything going to the founder; bad for the investor, because in an up liquidation scenario prior to conversion, the company can just pay off the note (..)

Founder 150

Founder Valuation Seed Money Common Stock 150

Gust

OCTOBER 12, 2011

In Part II, we looked at the mandatory conversion language that is at the heart of any convertible debt financing. In my experience, a term of 12 to 24 months is common, with 12 months being on the short end. Readers may find it helpful to download the sample term sheet from my firm’s website and follow along with the commentary.

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

Scott Edward Walker

APRIL 9, 2012

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? Why Can’t a Startup Issue Shares of Common Stock to Investors?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Gust

SEPTEMBER 17, 2014

These are all real conversations. What if when you have that conversation you don’t agree? If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. I have them all the time. I’m bored of it. And so forth. Not in my experience.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

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. Conversely, very junior employees have relatively little influence over the company, so their equity grants should be correspondingly much smaller, if at all.”.

Equity 60

Equity Employee Stock Options Vesting 60

ReadWriteStart

MAY 8, 2012

Now, we’re focusing early conversations intently on our strategy for winning and our progress thus far, which gives investors a clearer picture of who we are and where we’re headed.” Take into consideration board seats, the investor’s equity stake in the business and whether they will receive preferred or common stock.

Cofounder 140

Cofounder Startup San Francisco Silicon Valley 140

Startup Company Lawyer

JANUARY 9, 2011

Tweaking convertible debt so that common stock (instead of preferred stock) is issued for the conversion discount in order to limit liquidation preference overhang. An example of a term sheet provision to provide for the conversion discount to be paid in common stock and the math involved is below.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

Gust

OCTOBER 21, 2011

In Parts II and III, we looked at commonly used mandatory and voluntary conversion language in convertible notes. Investors would be repaid their principal, plus accrued interest, divided by the conversion price (let’s say 30% discount, so 1 – 0.3 = 0.7). a mix of cash and stock) received by other equity holders in the transaction.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

Up and Running

SEPTEMBER 20, 2021

Furthermore, there are various forms of equity, such as preferred stock, common stock, and convertible notes, which influence the present and potential future investors. Total share ownership is the sum of the common stock, stock options, preferred stock, and any other stock category for a single individual.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

Austin Startup

JULY 22, 2021

Pitch for a Fast Track into Capital Factory with a $100,000 Investment was originally published in Austin Startups on Medium, where people are continuing the conversation by highlighting and responding to this story. Female Founders!

San Antonio 107

San Antonio Dallas Houston Founder 107

Business Plan Blog

NOVEMBER 13, 2013

Various terms such as price cap, discount, conversion to equity, etc., The terms of the note are 10% discount and an automatic conversion after a financing of $1,000,000. 3) Giving non-voting stock. Bridge notes/loans are an example of convertible debt. can be incorporated in the agreement at the time of financing.

Finance 93

Finance Accredited Investor Angel Investor Seed Capital 93

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 13, 2013

Let’s assume that Founder X owns 800,000 shares of common stock and Founder Y owns 1,300,000 shares of common stock and that the option pool in total has 356,758 shares allocated (to make the total stated above). This clearly illustrates the power of a conversion discount. I have posted on this previously.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Startup Company Lawyer

JANUARY 31, 2011

Automatic conversion: on a $1M equity financing with no conversion discount and no price cap , provided that the transaction documents provide for a right to purchase a pro rata share of future financings. (I Optional equity conversion: on other equity financings with no conversion discount and no price cap.

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

YoungUpstarts

JUNE 23, 2015

Pick up the phone and have a conversation. Do you have common stock (or membership units)? If preferred, what are the differences between common and preferred? Talk to other investors. Ask the promoter to put you in touch with other investors. Here are a few questions to get you started: How do you know the promoter?

Private Equity 100

Private Equity Common Stock Equity Reputation 100

The Startup Lawyer

FEBRUARY 4, 2011

Thus your startup needs to determine the intangible value offered by the incubator (and yes, a $150,000 convertible note with no cap and no conversion discount qualifies as an intangible). As you can see, I don’t think any startup has joined an incubator based solely on the pre-money valuation.

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

Tim Keane

APRIL 12, 2006

Common stock is a vehicle for sharing risk equally with insiders who have more knowledge and ability to affect business results. Fewer investors will take common stock in early stage transactions. Fewer investors will take common stock in early stage transactions.

Entrepreneur 60

Entrepreneur Valuation Sweat Equity Common Stock 60