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. Conversion terms are where the money is, literally and figuratively.

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

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. They share in liquidation preferences pari passu and they vote as a single class. You’re just doing it up front.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

View from Seed

OCTOBER 15, 2014

Include both positives and negatives for a more productive board conversation, which is especially critical in the seed stage since nearly everything is in “figure it out” mode. Section 1: “High Level Summary” This is a short section that we’d recommend structuring in one of two ways.

Seed Stage 331

Seed Stage Cap Table Metrics Burn Rate 331

Feld Thoughts

SEPTEMBER 27, 2011

Some sort of conversion does occur. In the case of an early-stage startup that hasn’t issued preferred stock yet, the debt converts into stock of the acquiring company (if it’s a stock deal) at a valuation subject to a cap. If it’s not a stock deal, then one normally sees one of the above scenarios.

Conversion 97

Conversion Sales Later Stage Preferred Stock 97

ReadWriteStart

APRIL 7, 2011

The majority of financings was structured as preferred stock (69%), as opposed to convertible note financings (31%), and the vast majority of those (83%) had their conversion price capped. 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

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. As many of you know, VC investors are typically issued shares of preferred stock, not common stock. What Are Optional Conversion Rights?

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

Both Sides of the Table

APRIL 14, 2010

In straight preferences the investors only get this money in a “downside&# scenario as protection that they get their money back if your company isn’t successful. Take liquidation preferences head on. Existing investors won’t want to have these conversations. It’s not easy.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Agile VC

DECEMBER 4, 2014

But delaying or avoiding the conversation often results in it being more awkward than it needs to be. It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Scott Edward Walker

APRIL 9, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? 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?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

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. Have minimums but a sliding scale. Common Mistakes.

Warrant 298

Warrant Dilution Startup Stock Options 298

The Startup Lawyer

JUNE 22, 2010

For this article, let’s assume this equity is the Series A Preferred Stock purchased by a venture capital fund. For example, if a venture capital fund purchases Series A Preferred Stock at $1.00 per share, the discount may allow the angel investor to purchase the same Series A Preferred Stock at $0.75

Pre-Money Valuation 82

Pre-Money Valuation Angel Investor Preferred Stock Valuation 82

abovethecrowd.com

FEBRUARY 24, 2015

Lost in this conversation are the dramatic differences between a high priced private round and an IPO. Conversely, these late stage private rounds have no such pageantry or process. Most private company financings involve the use of preferred stock with liquidation preferences.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

Up and Running

MAY 23, 2016

Delaware law gives preferred stock investors of a corporation certain voting rights and control over the corporation. We asked for feedback about our software and our growth ideas and took part in the conversation. Make sure your tracking ‘conversions’ so you can see which marketing channel has the best conversion rate.

Software Review 74

Software Review Software Delaware Forecast 74

Tim Keane

JANUARY 12, 2010

Term-sheets for preferred stock offerings are designed to protect the investor in case things don’t go as well as planned. Term-sheets for preferred stock offerings are designed to protect the investor in case things don’t go as well as planned.   The answer to that, in a word, is risk, - the uncertainty of outcome.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Gust

OCTOBER 5, 2011

In case it isn’t clear by now, angel investors aren’t in the business of making risky early stage investments in order to earn 6% interest on their money, or even 10%— the upside is all in conversion to equity—so the interest rate isn’t a major point of negotiation. per share for 2,000,000 shares of newly issued Series A Preferred Stock.

Finance 79

Finance Preferred Stock Term Sheet Early Stage 79

Scott Edward Walker

APRIL 22, 2012

(ii) why are convertible notes issued instead of shares of common or preferred stock? This part 2 will address the economics of a convertible note seed financing and the three key economic terms: (i) the conversion discount, (ii) the conversion valuation cap and (iii) the interest rate. What Is a Conversion Discount?

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

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

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. Preference shares. A class of stock with special rights as described in your startup is called preference shares. Convertible notes.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

ithacaVC

DECEMBER 22, 2012

I recently engaged in a conversation (over a few days) about the need for a seed stage company to have a board member other than the founder. There is not a “right” answer to this, but the positions are worth exploring. For clarity, a company with one founder can have a one member board (assuming a corporation).

Seed Stage 82

Seed Stage Preferred Stock Founder Angel Investor 82

Startup Company Lawyer

JANUARY 9, 2011

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. This leads me to believe that there is a mini-bubble in the early stage financing universe.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

The Startup Lawyer

FEBRUARY 13, 2012

Conversely, if you are raising a small convertible note round (sub $100k), then a couple extra interest points may not be that material. 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

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

Hunter Walker

SEPTEMBER 29, 2022

All the preferred stock is pari passu and behaving honorably in the best interest of the company? Conversely, if you’re not a good picker, it’s difficult to overcome that, even if you had perfect timing on secondary sales. We’re aligned with the founders and the rest of the cap table until we aren’t.

Venture Capital 133

Venture Capital Cap Table LP Equity 133

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

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

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

Scott Edward Walker

JULY 7, 2011

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?

Term Sheet 49

Term Sheet Redemption Venture Capital San Francisco 49

ithacaVC

DECEMBER 13, 2013

QUESTION #3: What if Founder X and Founder Y issued themselves some sort of preferred stock instead of common stock? BUT, make sure you have a very clear listing of the debt, who owns it, when it was issued, interest rate and any applicable conversion discount. No problem as this happens all the time.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

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

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). The investor deserves to get preferred stock ultimately (remember, that was the goal of the convertible debt).

Common Stock 45

Common Stock Stock Cap Table Preferred Stock 45

Gust

OCTOBER 26, 2011

The purchase agreement sets forth the terms of the investment, often including the mandatory and voluntary conversion provisions we’ve covered in this series, as well as customary representations and warranties of the Company and the investors. See discussion of amendments below.) merger or acquisition).

Finance 79

Finance Term Sheet Covenant Accredited Investor 79

Business Plan Blog

APRIL 10, 2012

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.” In layman’s terms, investors will give money to a startup but instead of getting money back, they get preferred stock in return.

Finance 40

Finance Preferred Stock Equity Stock 40

Scott Edward Walker

SEPTEMBER 14, 2011

Here are the issues I have addressed to date: common mistakes dealing with VC’s valuation liquidation preferences stock options exploding term sheets and no-shop provisions anti-dilution provisions dividends Board control protective provisions drag-along provisions pay-to-play and pull-up provisions conversion rights non-contractual rights redemption (..)

Term Sheet 76

Term Sheet Due Diligence Liquidation Preference Redemption 76

The Next Web

JUNE 17, 2015

And, on a similar note, I would limit equity conversations to service providers that are going to be long-term in nature, helping you build your business over time. Now that we understand which service providers we are willing to have equity conversations with, next we have to understand how to structure these deals.

Equity 60

Equity Valuation Preferred Stock Common Stock 60

Berkonomics

OCTOBER 1, 2015

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. Further, preferred stock holders can be recipient of accrued dividends in a sale or liquidation.

Dividend 48

Dividend Preferred Stock IRR Participating Preferred 48

Berkonomics

JANUARY 6, 2022

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. Conversely, I have praised and seen others praise VCs who volunteer to eliminate participation clauses even before knowing the ultimate sales price in a deal.

Dividend 62

Dividend IRR Preferred Stock Participating Preferred 62