In a convertible note financing (or an increasingly popular SAFE financing), the change of control premium—the benefit given to a lender if the company has an exit before the notes convert—is an easily overlooked term. This is because it is rarely applicable, especially when the financing is a seed-type investment.
Unfortunately, too often I hear founders say things like “I promised her options for 2% of the company,” or worse, we see statements to that effect in employee offer letters or other agreements. In the worst cases, founders will even expressly agree to issue an investor or service provider a “fixed percentage” of the company’s ownership going forward.
The American Bar Association’s M&A Market Trends Subcommittee of the Business Law Section has just published its biannual Private Target Mergers and Acquisitions Deal Point Study. This edition of the Study analyzes 136 publicly filed transactions that closed in 2012. This is a valuable resource for those that are negotiating transaction terms as it provides some empirical data to inform what constitutes “market” for a particular issue.
Nearly every start-up begins in a garage, basement or home office. Some of today’s largest technology companies fall into that category, including Google, Apple, Hewlett-Packard and Amazon. But, at some point hopefully, the start-up outgrows its humble beginnings and needs to lease office, retail or storage space in order to meet consumer demands.
The passing of the JOBS Act created much fanfare, especially given the relaxation of the securities laws with respect to the use of “general solicitations.” Notwithstanding the excitement from the blogosphere, the revised rules also come with some hidden costs that make using a “general solicitation” in fundraising less attractive.
Between January and November 2013, more than $531 billion was raised to launch new startup ventures in the United States. But, how much startup funding really comes from VC’s and angel investors? Very little in comparison to the amount of money that most founders invest in their own business.
We recently represented Andreessen Horowitz as lead investor in a $25 Million Series B financing for Coinbase. This represents the largest investment to date in a Bitcoin company and is also significant in that Andreessen Horowitz is among a handful of the most elite VCs in the market.
Lawyers will tell you it’s important to incorporate your company as soon as you possibly can to avoid personal liability and to settle all outstanding matters among the founders. That’s good advice, but the place to start is with a Term Sheet for the incorporation.
The market for initial public offerings continues to heat up. Once your company has selected the managing underwriters for the offering and wants to begin the IPO process in earnest, an organizational meeting with management, the underwriters, counsel and possibly the auditors will be scheduled.
In a prior Founder Tip of the Week we discussed how the Internal Revenue Code (the “Tax Code”) characterizes unvested founder stock as not being purchased until it has vested, and that this characterization can have adverse tax consequences for the founder because the Tax Code treats as taxable income the excess, if any, of the fair market value of stock at the time it vests over the purchase price of the stock (the “spread”).
