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

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 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

JANUARY 15, 2021

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.

Vesting 298

Vesting Dilution Stock Founder Vesting 298

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

SEPTEMBER 27, 2023

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 240

Stock .Net Vesting Founder Vesting 240

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

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

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

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

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 97

Conversion Sales Later Stage Preferred Stock 97

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

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

Tim Keane

JANUARY 12, 2010

It also assumes the entire value of the investment is captured for investors at a sale of the company in the time specified in the term-sheet. This results in a range of sale prices; in this example from $118.6MM to $21MM.   In most cases, the preferred dividend is paid before any dividend is paid to the common.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

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

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

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

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

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

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).

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Preferred Stock Stock Finance Participating Preferred 28

Lightspeed Venture Partners

OCTOBER 1, 2012

The company did $1M in sales last year, 90% from wholesale, and had a 10% profit margin. They wanted to get to $10M in sales and then get bought by a big food company. The sales history is anemic, but perhaps the biggest asset that the company has is a trademark for Rockbands in the apparel field. pre money valuation).

Pre-Money Valuation 158

Pre-Money Valuation Valuation Participating Preferred Preferred Stock 158

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

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

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

Agile VC

FEBRUARY 28, 2013

increasing dividends or issuing preferred stock). Hungary probably wouldn’t sell their sovereignty and entire economy for 1x sales, but Apple has no debt so they could probably lever the deal and borrow money on top of $137 billion in equity.

Hungary 168

Hungary Dividend Vertical Preferred Stock 168

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 146

Venture Capital Cap Table LP Equity 146

www.paulgraham.com

APRIL 28, 2010

For example, VCs generally write it into the deal thatin any sale, they get their investment back first. Some VCsnow require that in any sale they get 4x their investment backbefore the common stock holders (that is, you) get anything, butthis is an abuse that should be resisted.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

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

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

Startup Company Lawyer

JANUARY 31, 2011

Optional maturity conversion : into Series AA Preferred Stock based on a $5M valuation. Please note that these are generally the terms of the Series AA Preferred Stock financing documents that Y Combinator previously published.).

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

Gust

OCTOBER 21, 2011

For convertible notes, the only liquidity event we need be concerned with is an acquisition of the startup in the near future, before the maturity date; otherwise, the notes will convert to equity of one kind or another, and the eventual sale of that equity (in a public offering, acquisition, or private sale) is a different subject for another day.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

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

Growthink Blog

MAY 10, 2012

If it's not your plan to get venture capital down the road, then you'll probably stop in Stage 2-receiving enough funding to boost your marketing, sales, and infrastructure to grow organically from there to the point where you are satisfied or ready to sell.

Equity 88

Equity Mezzanine Later Stage Venture Capital 88

Startup Company Lawyer

JULY 20, 2009

Starting capital gains holding period in the event of a stock sale. If a founder sells stock of a company in a taxable transaction and it is held for greater than one year, then the capital gains tax rate is 15% for founders in the 25% tax bracket and higher.

IP 67

IP Stock Options Preferred Stock Capital Gains 67

Berkonomics

OCTOBER 26, 2010

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. Email readers continue here.]

Stock Options 66

Stock Options Early Stage Stock Vesting 66

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