Startup Professionals Musings

NOVEMBER 30, 2015

A C-corporation is more complex and expensive, and is recommended only if you expect to pitch to professional investors who demand preferred stock, or to more than 100 potential shareholders. In the United States, this is a limited liability corporation, or LLC. Build your time line and momentum quickly after your business' start.

Intellectual Property 120

Intellectual Property Entrepreneur Preferred Stock Stealth 120

Startup Company Lawyer

AUGUST 31, 2012

” As a result, Ted introduced the Series Seed preferred stock documents as an alternative to convertible debt for early stage investments. Why convertible equity is better than preferred stock. The problem. The main point is to re-think convertible debt so that it doesn’t have a repayment feature or interest.

Convertible Security 73

Convertible Security Equity Security Preferred Stock 73

Growthink Blog

JANUARY 24, 2011

The question is whether they need to issue common or preferred stock. The answer depends on how and what rights are defined in the preferred stock. The liquidation preference means what is sounds - namely that preferred stock holders with this right get all of their money back (i.e.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

YoungUpstarts

AUGUST 25, 2015

Stocks are issued at the time the company is formed, and more can be issued over time. You can control the power of your company’s stock by issuing different classes. The ownership structure of an LLC is a blank slate.

LLC 100

LLC Technical Review Software Review Limited Liability Company 100

Agile VC

APRIL 17, 2011

Notes: In an IPO preferred share classes are converted into common stock, and liquidation preferences and accumulated but unpaid dividends essentially go away. One can infer valuations based on per share prices of preferred stock and oustanding common shares (~5.3M as of 12/31/09).

Pre-Money Valuation 113

Pre-Money Valuation Liquidation Preference Dividend Common Stock 113

Lightspeed Venture Partners

OCTOBER 7, 2012

Week three’s breakdown covered topics like how hard momentum is to turn around, and how participating preferred stock works. I’ve been writing up reviews of this season’s Shark Tank pitches from a silicon valley VCs perspective. This time I’ll break down week four of this season. BACK 9 DIPS.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

ReadWriteStart

JUNE 1, 2020

The shares given out can either be common stocks or preferred stocks. ? Debt investment. Equity investment is the most popular and most talked-about avenue for startup funding. These investments are made instead of shares or equity in your startup. Debt investment would have a repayment timeline and incur interest rates.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Startup Professionals Musings

JANUARY 4, 2020

Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. The average valuation for angel investments is $2 million, which will get you $500,000 for 20 percent of your startup. Are you flexible on the terms of the investment?

Startup 337

Startup Preferred Stock Exit Strategy Equity 337

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? Investors want additional protections.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Startup Professionals Musings

JANUARY 15, 2021

Facilitate an upgrade of founder’s common to founder’s preferred. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead.

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. Ask only for the money you can justify. Naïve expectations on funding terms and process.

Due Diligence 308

Due Diligence Intellectual Property Preferred Stock Startup 308

Startup Company Lawyer

MARCH 12, 2009

Any company that raises venture financing will need to be a C corp in order to issue preferred stock. C corps, LLCs, and S corps differ significantly in the areas of taxation, ownership, fundraising, governance and structure, and employee compensation. Almost all technology startup companies that I work with are C corps.

LLC 61

LLC Stock Options Preferred Stock Stock 61

Startup Professionals Musings

OCTOBER 7, 2022

Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. The average valuation for angel investments is $2 million, which will get you $500,000 for 20 percent of your startup. Are you flexible on the terms of the investment?

Preferred Stock 304

Preferred Stock Exit Strategy Equity Angel Investor 304

Steve Blank

APRIL 26, 2022

Some even insisted that all prior preferred stock had to be converted to common stock. For existing investors, sometimes it was a “pay-to-play” i.e. if you don’t participate in the new financing you lose. Other times it was simply a take-it-or-leave-it, here are the new terms.

Cram Down 417

Cram Down Founder Venture Capital Recapitalization 417

Both Sides of the Table

JULY 25, 2011

To this day I’m still surprised how few CEOs really understand the differences between 2x liquidation preference and a liquidation preference with a 2x cap. Or what “participating preferred&# stock is and how it can screw you. Or what “flat spots&# on a cap table are.

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

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

Startup Professionals Musings

DECEMBER 11, 2022

Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Ask only for the money you can justify. Naïve expectations on funding terms and process.

Due Diligence 271

Due Diligence Intellectual Property Entrepreneur Preferred Stock 271

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.

Equity 315

Equity Founder Sweat Equity Cofounder 315

Startup Professionals Musings

SEPTEMBER 27, 2023

Facilitate an upgrade of founder’s common to founder’s preferred. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead.

Stock 240

Stock .Net Vesting Founder Vesting 240

Gust

JUNE 7, 2014

5) Senior Preferred Stock and warrants. 6) Any preference multiple on (5). 7) Junior Preferred Stock and warrants. 8) Any preference multiple on (7). 9) Common Stock (including any Preferred that converted to Common, any exercised options, and all Founders stock) and Common stock warrants.

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

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. Another easy way to do it is the term sheet create Series Seed A-1 and Series Seed A-2.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

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

Both Sides of the Table

AUGUST 30, 2010

Funnily enough I just answered this question yesterday on Quora when somebody asked, “Why would an early-stage investor specifically NOT prefer a convertible note structure to straight equity (e.g. a priced/valued preferred stock financing)?&#. Here is my answer with some minor editing: _.

Equity 319

Equity Early Stage Angel Investor Valuation 319

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.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

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

Up and Running

AUGUST 28, 2019

This article will not delve into the more complex options and requirements for a corporation’s stock. You can read further about the details of preferred stock versus common stock Classes A and B. . Most small businesses will be fine sticking to small numbers of common stock only.

Delaware 83

Delaware Stock Nevada Technical Review 83

Startup Professionals Musings

MARCH 11, 2013

For example, you and your partner may be perfectly happy with an LLC, but venture capital or Angel investors may insist on having “preferred” stock, forcing an upgrade to a C-Corp. Legal requirements and tax requirements change as a business grows, so your entity needs to be reviewed regularly.

LLC 234

LLC Nevada Delaware Limited Liability Company 234

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

FEBRUARY 8, 2019

You may start as an LLC but find that a potentially high-value investor insists on having preferred stock, which is only available with a C-Corp. For example, any LLC or S-Corp can elect to be treated for tax purposes as a sole proprietorship (Schedule C), partnership (Schedule K), or as an S-Corp (Form 2553).

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Startup Professionals Musings

JANUARY 29, 2018

Negotiate an upgrade from common shares to preferred stock. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead. Here is another case where work up front is required to make this happen.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

Early Growth Financial Services

FEBRUARY 3, 2015

Today, we’re tackling participating versus non-participating preferred stock, a fundamental economic term in VC deals that goes to the heart of the business agreement between investors and management in connection with a sale of the company. management). management). Participating versus non-participating: what’s the difference?

Preferred Stock 28

Preferred Stock Stock Finance Participating Preferred 28

K9 Ventures

MAY 14, 2011

Common Stock. Convertible Note or Preferred Stock. Convertible Note or Preferred Stock. Preferred Stock. Preferred Stock. Preferred Stock / Warrants. Limited Partners, very little Personal Money. Corporate Money. Investment Structure. Debt or Convertible Note. Board Seats.

Preferred Stock 125

Preferred Stock Seed Stage Incubator Accredited Investor 125

Feld Thoughts

JULY 27, 2011

Series A Preferred Stock Purchase Agreement. As a step in the right direction, Jason and I decided to open source our Foundry Group form legal documents. You can find them on the Ask the VC Resources page. Included are our standard forms for the following: Series A Term Sheet. Investor Rights Agreement. Co-Sale Agreement.

Term Sheet 136

Term Sheet Preferred Stock Merger Venture Capital 136

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.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Startup Professionals Musings

SEPTEMBER 26, 2015

For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. Type of stock assigned to the investor. Investors typically demand preferred stock, to give themselves certain voting and liquidation privileges over later shareholders. Even founder’s shares are common stock.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Both Sides of the Table

MARCH 21, 2010

Make the warrants for common stock and not preferred stock. This is the same as with employee stock options. I see the PBW as a good excuse for them to want to have the meeting. Your broader goal is about how to make the relationship work better. Common Mistakes.

Warrant 298

Warrant Dilution Startup Stock Options 298

The Startup Lawyer

MARCH 1, 2010

The board is set up to consist of 3 directors: 1 director elected by the common (founders); 1 directors elected by the preferred (investors); 1 “independent&# director (i.e., 2) Series Seed Stock Preferred Stock Purchase Agreement. Tags: Preferred Stock documents lawyer seed funding.

Preferred Stock 79

Preferred Stock Term Sheet Redemption Registration Rights 79