techcrunch.com

SEPTEMBER 2, 2012

The reason why many have started using the debt note, is because with no complications, an average convertible debt deal can be sealed with a five to seven page legal agreement that takes just a few hours to finish, and costs $5,000 or less. Ressi estimates that the debt note now accounts for over 50% of all angel and early stage deals.

Equity 87

Equity San Francisco Technical Review Angel Investor 87

Startup Professionals Musings

JANUARY 4, 2020

Here is where projections of cost, pricing, volumes and cash flow are critical. Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. How much do you really need for the next 12 to 18 months? Are you flexible on the terms of the investment?

Startup 337

Startup Preferred Stock Exit Strategy Equity 337

Startup Professionals Musings

JANUARY 15, 2021

Retain the right to reclaim stock from anyone leaving the startup. To retain control, the original founder must reserve the right of first refusal to buy shares back at cost from a partner who decides to leave early or stop working. Facilitate an upgrade of founder’s common to founder’s preferred.

Vesting 298

Vesting Dilution Stock Founder Vesting 298

Startup Professionals Musings

MARCH 14, 2020

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Potential return on investment cannot be calculated without a clear understanding and evidence of actual costs, revenue flows, and margins. Ask only for the money you can justify.

Due Diligence 308

Due Diligence Intellectual Property Preferred Stock Startup 308

Startup Professionals Musings

OCTOBER 7, 2022

Here is where projections of cost, pricing, volumes and cash flow are critical. Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. How much do you really need for the next 12 to 18 months? Are you flexible on the terms of the investment?

Preferred Stock 304

Preferred Stock Exit Strategy Equity Angel Investor 304

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. Why is it called Series Seed? What rights does the Series Seed have? Investor pressure.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Startup Professionals Musings

DECEMBER 11, 2022

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Potential return on investment cannot be calculated without a clear understanding and evidence of actual costs, revenue flows, and margins. Ask only for the money you can justify.

Due Diligence 271

Due Diligence Intellectual Property Entrepreneur Preferred Stock 271

Up and Running

AUGUST 28, 2019

Having both will add cost, but they should also add significant peace of mind to your work throughout this process. The cost of filing ranges between $100 up to $800 or so, depending on your state and type of entity. . Simply put, some people prefer the peace of mind, and others might find their state-issued forms a bit daunting.

Delaware 83

Delaware Stock Nevada Technical Review 83

View from Seed

DECEMBER 4, 2014

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. This needn’t be some terribly complex formula that tries to do a cost accounting of everyone’s contribution to the decimal point.

Equity 315

Equity Founder Sweat Equity Cofounder 315

Startup Professionals Musings

SEPTEMBER 27, 2023

Retain the right to reclaim stock from anyone leaving the startup. To retain control, the original founder must reserve the right of first refusal to buy shares back at cost from a partner who decides to leave early or stop working. Facilitate an upgrade of founder’s common to founder’s preferred.

Stock 240

Stock .Net Vesting Founder Vesting 240

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

View from Seed

OCTOBER 15, 2014

Examples of housekeeping include the following list, though not every item will appear every time: Finance: Cash out date, burn rate, 409A valuation, cap table, common/preferred stock dashboard. Team: Hires, fires, departures, responsibility changes, major promotions, and your org chart.

Seed Stage 331

Seed Stage Cap Table Metrics Burn Rate 331

Agile VC

DECEMBER 4, 2014

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. This needn’t be some terribly complex formula that tries to do a cost accounting of everyone’s contribution to the decimal point.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

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 Professionals Musings

JANUARY 29, 2018

To retain control of your business, you need to reclaim stock shares from anyone leaving the startup for any reason. Otherwise, later stock value growth may be lost or used against you before you can capitalize on it. Buying back stock on the open market may cost a huge premium.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

VC Cafe

OCTOBER 23, 2010

Fred Wilson , Paul Graham and Seth Levine all agree that as an entrepreneur one would prefer uncapped convertible debt to equity, but investors typically won’t go for it. And finally, to quote the authors: In sum, Series Seed creates a level playing field between capped debt and equity documents in terms of speed and cost.

Early Stage 79

Early Stage Term Sheet Preferred Stock Equity 79

David Teten

AUGUST 19, 2019

The idea is for us to take advantage of a cost/expense that our borrowers are already incurring (credit card fees) and structure an investment that truly aligns our interests. Sample Series B Preferred Stock sample term sheets from: Kauffman Foundation and Carlton Fields Jorden Burt. Also of interest.

Revenue 60

Revenue Term Sheet Founder Technical Review 60

Agile VC

DECEMBER 4, 2014

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. This needn’t be some terribly complex formula that tries to do a cost accounting of everyone’s contribution to the decimal point.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Up and Running

MAY 23, 2016

The software was sold based on installation cost running on local servers for enterprises—which was very, very expensive. Delaware law gives preferred stock investors of a corporation certain voting rights and control over the corporation. Estimating Realistic Startup Costs. Pick a name for your business.

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.   In some rare cases, there may also be a participation provision for dividends which pays the preferred a dividend beyond their own equal to any dividend paid to the common.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Agile VC

FEBRUARY 28, 2013

increasing dividends or issuing preferred stock). No matter how awesome an Apple TV might be, it’s difficult to envision a similar scenario where cable companies subsidized the cost. Time Warner (~$50B mkt cap) would be the other logical choice in this vector.

Hungary 168

Hungary Dividend Vertical Preferred Stock 168

abovethecrowd.com

FEBRUARY 24, 2015

Many companies embed costs that are truly variable (for instance customer support, marketing, credit card processing) below the gross margin line. 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

DECEMBER 1, 2015

Typically, employers that offer employees equity compensation will do so in the form of common stock, preferred stock, or stock options. Don’t save starting costs by giving the business away.”. I’ll go into the difference between these in just a moment. Types of equity compensation. Pay the fees [for your vendors].

Equity 60

Equity Employee Stock Options Vesting 60

Startup Professionals Musings

MAY 18, 2015

Retain the right to reclaim stock from anyone leaving the startup. To retain control, the original founder must reserve the right of first refusal to buy shares back at cost from a partner who decides to leave early or stop working. Facilitate an upgrade of founder’s common to founder’s preferred.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

AUGUST 1, 2016

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Potential return on investment cannot be calculated without a clear understanding and evidence of actual costs, revenue flows, and margins. Ask only for the money you can justify.

Due Diligence 120

Due Diligence Intellectual Property Preferred Stock Seed Stage 120

Startup Professionals Musings

MARCH 7, 2015

Here is where projections of cost, pricing, volumes and cash flow are critical. Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. How much do you really need for the next 12 to 18 months? Are you flexible on the terms of the investment?

Preferred Stock 120

Preferred Stock Exit Strategy Equity Angel Investor 120

The Startup Lawyer

JULY 13, 2011

While using these document sets can help reduce transaction costs and the time to close, a startup can run into trouble by trusting deal documents without verification. For example, a startup requested I review a set of financing documents produced by investor counsel.

Preferred Stock 68

Preferred Stock Liquidation Preference Participating Preferred Stock 68

Lightspeed Venture Partners

OCTOBER 1, 2012

in sales but made only $20k in profit, despite not having any advertising costs. The product retails for $39.95, wholesales for $19.95, and costs just $5 to make. In most investments, the investor gets straight preferred stock. The company was founded 12 years ago and had done $24M in sales to date.

Pre-Money Valuation 158

Pre-Money Valuation Valuation Participating Preferred Preferred Stock 158

Feld Thoughts

FEBRUARY 23, 2019

What I bought was three shares of Cities Service preferred stock. I particularly loved Warren Buffett’s reflections at the end of the letter in a section called The American Tailwind, which follows: On March 11th, it will be 77 years since I first invested in an American business. I had begun accumulating at age six.

Preferred Stock 114

Preferred Stock United States Dividend America 114

Startup Company Lawyer

JULY 20, 2009

Generally, I prefer to incorporate and issue founder’s stock at nominal prices well in advance of a Series A preferred stock financing because it is difficult to justify that common stock should be priced at $0.001 per share while Series A preferred stock is issued at $1.00

IP 67

IP Stock Options Preferred Stock Capital Gains 67

The Startup Lawyer

FEBRUARY 4, 2011

Most incubators take common stock and sit “side-by-side&# with the founders, but some may want some (weak) preferred stock and/or dilution protection. 8) Determine the Opportunity Costs. Other incubators may want to set up an option pool.

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

ReadWriteStart

JANUARY 28, 2022

These characteristics, comparable to those found in the fixed income market, can convert into common stock, call clauses, and other features. Warrants are a kind of equity that are often attached to a corporate bond issuance or preferred stock to make the transaction more appealing to investors.

Valuation 108

Valuation Equity Warrant Common Stock 108

www.payne.org

SEPTEMBER 22, 2011

Your offer will almost surely be for common stock. Preferred stock classes typically go to investors, and in some cases founders (usually where the founders have already invested some of their own money to build the company). If the company is acquired or liquidated, the preferred stock holders will get paid first.

Equity 56

Equity Employee Vesting Preferred Stock 56

ithacaVC

JUNE 20, 2011

Cost is the overriding issue for startups when it comes to properly engaging a lawyer. My general retort on this point is this: expect to incur real lawyer costs and get over it. This is a follow on to my June 13, 2011 post about controlling your lawyer and was inspired by a comment to that earlier post.

Stock Options 58

Stock Options Vesting Subscription Agreement Founder Vesting 58

Agile VC

APRIL 17, 2011

Obviously most of these employees are working hard primarily for equity upside compensation, but Kayak’s personnel costs are roughly $200K/head so the company is highly productive on a per employee basis. 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

David Teten

MARCH 14, 2018

. – Build out low-cost force multipliers such as scouts , Advisors, Entrepreneurs in Residence, Venture Partners, and so on. Typically these outside resources are paid only on a success basis, so the marginal cost is low. . All of the strategies above have very modest fixed cost. This requires a real financial sacrifice.

Private Equity 60

Private Equity Venture Capital Equity Cofounder 60

Startup Professionals Musings

MARCH 11, 2013

One of the first questions that I get from many entrepreneurs is “How should I set up my company to minimize my setup costs, tax liabilities, and risk of lawsuits?” 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.

LLC 234

LLC Nevada Delaware Limited Liability Company 234