Steve Blank

APRIL 10, 2019

A “secondary” usually (though not always) happens when the startup has achieved significant revenue or traction and is seen as a “leader” in their market space, on the way to an IPO or a major sale. Today, if you’re an employee you’re now are at the bottom of the stock preference pile. And you’re working just as hard.

Stock Options 335

Stock Options Stock Vesting Common Stock 335

YoungUpstarts

AUGUST 25, 2015

Owners of corporations also pay taxes when they are paid dividends or profit from sale of the stock, which is why it is common to say that corporations are “double-taxed.” Stocks are issued at the time the company is formed, and more can be issued over time. When an LLC allocates income to owners (i.e. Verdict : Corporation.

LLC 100

LLC Technical Review Software Review Limited Liability Company 100

Gust

MAY 24, 2012

Options and warrants, when issued, are also typically exercisable for shares of Common Stock. By contrast, venture capital and angel investments normally take the form of Preferred Stock with rights and preferences set forth in the company’s Certificate of Incorporation and other governance documents.

IPO 159

IPO Equity Common Stock Stock 159

Berkonomics

MAY 23, 2024

The option price should be set by appraisal under IRS rule 409a, and certainly should be low enough to recognize that common stock options are not worth as much as preferred stock, given the many preferences of the latter. How do you set the option price? Special clauses for board members and senior executives?

Early Stage 62

Early Stage Vesting Stock Options Preferred Stock 62

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

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. The company has done $400k in sales in less than two years and had an early test deal with a local supermarket chain that they were massively overperforming on. in 2012 sales and $2M in income.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

Gust

JUNE 7, 2014

Every investment round in a company is made on the basis of extensivepaperwork (often upwards of 100 pages in total) specifying *precisely* what happens when it comes time to pay out the proceeds (if any) from the sale or dissolution of the company. 5) Senior Preferred Stock and warrants. 6) Any preference multiple on (5).

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

Feld Thoughts

SEPTEMBER 27, 2011

In this case, the convertible debt document doesn’t allow the debt to convert into anything, but at the same time mandates that upon a sale the debt must be paid off. If it’s not a stock deal, then one normally sees one of the above scenarios. So the lenders don’t see any of the upside on the acquisition. Typical language follows.

Conversion 96

Conversion Sales Later Stage Preferred Stock 96

ReadWriteStart

JUNE 1, 2020

The shares given out can either be common stocks or preferred stocks. ? Debt investment. Instead of funding, you pay the investors a structured royalty, which is a portion of the sales. Equity investment is the most popular and most talked-about avenue for startup funding. These are also another form of funding.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Startup Professionals Musings

FEBRUARY 8, 2019

In addition, many corporations have quarterly filing requirements, or even monthly ones if you have payroll taxes, sales taxes, or state filing requirements. 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.

LLC 210

LLC Limited Liability Company Cofounder Preferred Stock 210

Berkonomics

FEBRUARY 3, 2022

I also recall vividly one of my first investments where the entrepreneur backed out of a sale to a well-known investment company at the last second, declaring his intention not to sell “his” company. A personal experience that relates. I was able to negotiate a “put” of my shares back to the company at 5x my investment.

Liquidity Event 62

Liquidity Event Preferred Stock Dividend Equity 62

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

Berkonomics

MARCH 8, 2018

The option price should be set by appraisal under IRS rule 409a, and certainly should be low enough to recognize that common stock options are not worth as much as preferred stock, given the many preferences of the latter.

Early Stage 102

Early Stage Vesting Stock Options Preferred Stock 102

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

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

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

Berkonomics

JULY 23, 2020

Sometimes the end game or sale of the company is not a happy event. Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment. There are some questions a distressed sale brings to mind. Investor notes vs. stock late in the game.

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62

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

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 126

Venture Capital Cap Table LP Equity 126

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. Co-sale rights. Changes in preferred and merger/sale of assets only. Voting agreement.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Startup Professionals Musings

MAY 18, 2015

Make sure the government waits for a stock sale to collect taxes. 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 120

Stock Vesting Common Stock Founder Vesting 120

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

Startup Professionals Musings

MARCH 11, 2013

In addition, corporations have quarterly filing requirements, and even monthly ones, if you collect sales taxes and hire employees. 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.

LLC 234

LLC Nevada Delaware Limited Liability Company 234

The Startup Lawyer

JANUARY 10, 2012

In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., founders, option holders, etc.).

Liquidation Preference 73

Liquidation Preference Pre-Money Valuation Participating Preferred Preferred Stock 73

Up and Running

MAY 23, 2016

In the tactics section, list your sales channels and describe how you will be selling your products. While it’s useful to be able to have a sales forecast and expense budget early on, it’s not something you need until you’ve validated your idea. A few resources you may want to check out include: How to Forecast Your Sales.

Software Review 74

Software Review Software Delaware Forecast 74

Both Sides of the Table

SEPTEMBER 8, 2012

” If you remember the three rules of sales : it’s. 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. So you need an anchor. But how to get one?”

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

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. It also scales back the right of first refusal and jettisons the co-sale right.

Preferred Stock 79

Preferred Stock Term Sheet Redemption Registration Rights 79

Berkonomics

DECEMBER 20, 2018

These are your candidates, because they are companies already absorbing much or all the marketing expense necessary to make sales of your invention. Starting next week, we’ll examine the process and advantages of raising money using various financial tools from notes to preferred stock to other more esoteric tools.

IP 54

IP Intellectual Property Investment Bankers Product 54

Feld Thoughts

JULY 27, 2011

Series A Preferred Stock Purchase Agreement. Co-Sale 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.

Term Sheet 136

Term Sheet Preferred Stock Merger Venture Capital 136

Berkonomics

DECEMBER 20, 2018

These are your candidates, because they are companies already absorbing much or all the marketing expense necessary to make sales of your invention. Starting next week, we’ll examine the process and advantages of raising money using various financial tools from notes to preferred stock to other more esoteric tools.

IP 48

IP Intellectual Property Investment Bankers Product 48

The Startup Lawyer

FEBRUARY 13, 2012

The convertible note interest should also accrue until the note converts into equity or is paid out at the sale of the company. 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

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. While some companies may use it as a means of paying employees a lower salary upfront, it’s very rarely offered as a complete replacement to receiving a regular compensation package.

Equity 60

Equity Employee Stock Options Vesting 60

Both Sides of the Table

MARCH 21, 2010

If you simply to a revenue number (say hitting $1 million in sales) and they hit it in year 1 then you’ve lost your carrot for year 2. While I’m a huge believer that sales bonuses should always be uncapped, I think capping PBW’s is a good idea. million in sales. million in sales (e.g.

Warrant 298

Warrant Dilution Startup Stock Options 298

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

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

Berkonomics

AUGUST 29, 2013

Sometimes the end game or sale of the company is not a happy event. Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment. There are a number of questions a distressed sale brings to mind.

Delaware 66

Delaware Liquidation Preference Liquidity Event Preferred Stock 66

ithacaVC

DECEMBER 14, 2011

Specifically, “too much” liquidation preference (I will use “LP” for liquidation preference). As most of you probably know, LP is one of the fundamental economic attributes of preferred stock that preferred shareholders enjoy.

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49