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

Tim Keane

JANUARY 12, 2010

It also assumes the entire value of the investment is captured for investors at a sale of the company in the time specified in the term-sheet. This results in a range of sale prices; in this example from $118.6MM to $21MM.   In most cases, the preferred dividend is paid before any dividend is paid to the common.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

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

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

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

Austin Startup

JULY 22, 2021

million in funding Houston’s GroupRaise is a marketplace that helps groups of 20–200 people make reservations at restaurants willing to donate a percentage of the sales back to a charitable cause. Dallas’ ShearShare has a marketplace connecting stylists with available seats at salons and $2.3 million in funding. Female Founders!

San Antonio 107

San Antonio Dallas Houston Founder 107

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

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

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

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

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

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. Preferred Stock is the most usual form of investment today. Preferred Stock is the most usual form of investment today.

Entrepreneur 60

Entrepreneur Valuation Sweat Equity Common Stock 60

Duct Tape Marketing

JUNE 5, 2018

This will help to move them closer to the sale. Do the best you can to avoid common stock photos. To ensure you stay top of mind, put enticing forms and CTAs in place (that link to valuable resources) to get their email address and continue to create valuable content that is relevant to their stage in the customer journey.

Kansas City 78

Kansas City Kansas Audience Differentiation 78

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

Scott Edward Walker

JUNE 9, 2019

Such right shall not apply to any public offering and will terminate immediately prior to a Qualified Public Offering.

Preferred Stock 56

Preferred Stock Term Sheet Dilution Stock 56