The Next Web

JUNE 15, 2012

From Silicon Valley to Peoria, Illinois, cash-strapped startups look for inventive way to finance their business – often handing out equity to employees, consultants, vendors, and other service providers. Many young tech startups reserve 15%-20% for employee stock options. It’s a logical solution.

Equity 116

Equity Stock Options Vesting Stock 116

Scott Edward Walker

JULY 20, 2011

This is particularly important where there will be an ongoing relationship post-closing, such as in a venture capital financing or private equity acquisition. Whatever the issue, the advice is simple (albeit difficult to execute): in order to maintain negotiating leverage and credibility, the entrepreneur should not capitulate first.

Private Equity 78

Private Equity Liquidation Preference Option Pool Entrepreneur 78

Both Sides of the Table

JUNE 5, 2015

I am reminded of this problem every time my firm does a financing where a note went before us but more specifically I was reminded by this great post by Brad Feld to talk about the pre-money vs. post-money conversion issue. So how DOES a VC think about financings at early stages? How much is in the option pool?

Pre-Money Valuation 150

Pre-Money Valuation Option Pool Post-Money Valuation Dilution 150

Hunter Walker

AUGUST 7, 2017

But employee option pool is important enough that I wanted to briefly expand upon my comment above. Since Homebrew typically leads/co-leads seed rounds, we assist in helping founders design and manage their pool against their hiring forecast. As you can see, Weekend VC Twitter gets pretty wild and crazy!!!!

Equity 96

Equity Pre-Money Valuation Option Pool Founder 96

ReadWriteStart

SEPTEMBER 2, 2011

While certainly not every business needs to raise venture financing, it is the path for many high-growth technology startups. Including things like liquidation preferences impact both future rounds and ultimate liquidity to why VCs ask to expand an option pool before investing as part of their term sheet.

Cap Table 125

Cap Table Term Sheet Liquidation Preference Technical Review 125

Pascal's View

JULY 9, 2017

When it comes time to convert the notes, these entrepreneurs face ‘sticker shock’ about their post-financing ownership. They do not recognize that they may have already contractually sold a meaningful portion of equity in their company. That’s only one result of mismanaged expectations dating back to when the notes were issued!

Post-Money Valuation 49

Post-Money Valuation Valuation Cap Table Covenant 49

Up and Running

SEPTEMBER 20, 2021

Total share ownership is the sum of the common stock, stock options, preferred stock, and any other stock category for a single individual. Here you can see that the founders own most of the shares at 67.7%, then the ESOP (employee stock option pool) at 12.31 Outline your plans for future employee stock option pools.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

Gust

SEPTEMBER 13, 2012

In general, and in a more-or-less-ideal world, companies should be prepared to give up roughly 20%-40% of equity for each round of early financing, where the size of each round is enough for the company to increase its valuation significantly. …and like this based on giving up 40% for each financing round: After Founding: 100%.

Option Pool 160

Option Pool Equity Valuation Startup 160

ithacaVC

SEPTEMBER 4, 2011

Here is the latest edition of Finance Fridays from Brad Feld called “Introducing the Cap Table and CTO” Every startup needs someone to be in charge of the Cap Table. That person is typically the inside finance person, but it does not really matter who so long is it is always current.

Cap Table 49

Cap Table Finance Option Pool Warrant 49

www.inc.com

SEPTEMBER 24, 2011

Finance | Tuesdays. Financing a Small Business. Financing A Small Business. Personal Finance. Before Roving Software could receive its first round of financing from professional investors, in early 1999, he had to put all the stock arrangements in writing. Start-up | Mondays. Technology | Thursdays. Franchises.

Fractional CTO 40

Fractional CTO Equity Iowa Technical Cofounder 40

ithacaVC

DECEMBER 13, 2013

They are typically pretty simple: (i) shares owned by founders and (ii) shares authorized for issuance in a stock option pool, some of which may be issued to employees already and some of which will be available for future issuance. And don’t forget that the options granted would come out of the available option pool.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

www.readwriteweb.com

DECEMBER 29, 2011

While certainly not every business needs to raise venture financing, it is the path for many high-growth technology startups. This includes things like how liquidation preferences impact future rounds and ultimate liquidity, to why VCs ask to expand an option pool before investing as part of their term sheet.

Cap Table 47

Cap Table Term Sheet Liquidation Preference Technical Review 47

venturehacks.com

FEBRUARY 24, 2010

Two founders works because unanimity is possible, there are no founder politics, interests can easily align, and founder stakes are high post-financing. When 4-5 founder companies work, it’s because two founders dominate. Someone you have history with You wouldn’t marry someone you’d just met. Date first. Learn more.

Cofounder 101

Cofounder Founder Technical Cofounder Technical Review 101

The Startup Lawyer

FEBRUARY 4, 2011

Other incubators may want to set up an option pool. If so, the startup’s founders need to know this option pool lowers your pre-money valuation. Like any issuance of stock or investment, one of the main things a startup should be concerned with is: Is this going to fuck up a future financing ? Conclusion.

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

Tim Keane

JANUARY 12, 2010

For angel groups, the distinction between groups and VCs on this issue is dwindling, especially as angel groups do bigger rounds of financing.   Note that this applies only to earl stage Series A-type equity financings and assumes no cash dividends are paid to investors.   First , dividends.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Scott Edward Walker

NOVEMBER 26, 2017

Indeed, this is critical in order to effectively negotiate any transaction (including a financing) – as every investment banker on Wall Street understands. As you begin to set-up investor meetings, the challenge now is to create a competitive environment and a sense of urgency.

Term Sheet 63

Term Sheet San Francisco Founder Investment Bankers 63

Seeing Both Sides

JULY 15, 2009

VCs have an unfair advantage when it comes to financings. A typical start-up company will do 2-4 venture capital financings before a successful exit (or, conversely, an ignomious ending). In contrast, the typical venture capitalist, either individually or across their partnership, will do 5-10 financings in any given year.

Pre-Money Valuation 49

Pre-Money Valuation Option Pool Stock Options Post-Money Valuation 49

ithacaVC

JANUARY 24, 2013

Having a relatively small about of convertible debt on your balance sheet prior to your Series A financing is not a bad thing. Option pool: 500,000 shares (some issued, some reserved, but that is typically irrelevant as the whole pool is normally factored into the premoney share price calculation). 7692 per share.

Valuation 53

Valuation Balance Sheet Option Pool Dilution 53

David Teten

DECEMBER 3, 2019

Some notable metrics are revenue growth rates, free cashflow, leverage ratios, historical financing amounts, returns on marketing spend, customer acquisition costs, lifetime value of customers, customer churn rates, and team social scores. I’ve seen other VCs use Bridge to more efficiently make and track introductions. .

Technical Review 78

Technical Review Software Review Analytics Private Equity 78

Scott Edward Walker

AUGUST 31, 2011

Which financing sources should they consider? Because this is only a $725K investment, a good lawyer will recommend structuring the investment as a convertible note or a “Series Seed” financing , rather than a full-blown Series A. These people need help in defining and pursuing their business goals. At what valuation and on what terms?

Silicon Valley 45

Silicon Valley Term Sheet Liquidation Preference Redemption 45

Hunter Walker

MAY 7, 2014

Building a senior team but pushing back on having a healthy employee option pool? Hopefully this was a helpful overview of what VCs are really asking about for early stage financing discussions of hiring (or at least what we think about at Homebrew). Won’t work out well.

Hiring 111

Hiring Option Pool Early Stage Term Sheet 111

techcrunch.com

FEBRUARY 25, 2010

You could make the same argument about acquisitions and option pools. Now consider what would happen if the same company raises another $10 million, expands the employee option pool to hire more executives and to support 300 people. It is worth $250 million at the time of a public offering.

Liquidation Preference 63

Liquidation Preference Founder Option Pool Acquisition 63

Professor VC

JANUARY 17, 2008

He then went on to say that this type of financing was good for the entrepreneur (vs taking VC money) because they got to keep more of the company. At a $1 million, pre-money, with an investment of $500K, that would leave 67% of the company for the founders and initial option pool.

Pre-Money Valuation 28

Pre-Money Valuation Angel Investor Angel Groups Valuation 28

www.mattbartus.com

DECEMBER 9, 2012

You have a 20% option pool, so you know this will take your ownership down from 80% to 60%, and the VC will get 25%. Option Pool. Option Pool. I just worked on a financing for a company that received a term sheet from a group of VCs at a $7 million pre-money valuation. Post-Money. Series A. -.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Both Sides of the Table

FEBRUARY 22, 2011

The most tempting thing to do in a financing is to find two investors to split a deal. When you consider that they’ll also want a 15-20% option pool in the company you’re talking about founders owning as little as 40% after just one round. .&# If your VC had stranded you, you won’t hear this – believe me.

Dilution 314

Dilution Cap Table Due Diligence Option Pool 314

www.instigatorblog.com

OCTOBER 23, 2010

You can’t have an option pool that takes up 50% of the company’s shares, and you have to leave room for future employees as well. Paul Graham offers up a formula for the equity challenge , which I think proves the fact that those first few employees deserve more. the better the startup will be. I agree with you somewhere.

Equity 41

Equity Employee Startup Vesting 41

venturehacks.com

MARCH 21, 2008

Many advisors want options they can exercise immediately —that’s fine. If your company hasn’t raised a Series A, increase the advisor’s equity by roughly 30%-50% to account for dilution from seed investors, Series A investors, option pools, swimming pools, and the like.

Advisory Board 44

Advisory Board Cap Table Vesting Equity 44

thestartuplawyer.com

FEBRUARY 24, 2010

About the Author Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. He obviously never launched a startup and got shafted by a co-founder. Click here to learn more about his practice.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

www.payne.org

SEPTEMBER 22, 2011

At a minimum, do your own personal finance homework so you know how much salary you need to live and not spend your savings. Companies allocate a pool of stock (usually called the Incentive Stock Option pool, or ISO pool) to grant to employees.

Equity 56

Equity Employee Vesting Preferred Stock 56

The Next Web

AUGUST 14, 2013

You’ll hear terminology getting bandied about left and right about things like convertible notes, capped vs. uncapped, stock option pools, board observer rights, maturity dates, priced equity. A convertible note is actually a debt instrument that converts to equity upon certain events occurring (usually a series A financing event).

Founder 142

Founder Incubator Cofounder Accredited Investor 142