The date of an agreement is an important part of most business transactions and M & A is no exception. Many acquisition agreements begin with an “Agreement between” the parties “effective as of” a given date. Does it matter if this effective date is prior to the date the parties actually entered into the agreement? And if so, is this ‘backdating’ problematic or even potentially illegal?
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A commonplace among emerging companies is the need to promise investors seats on the board of directors. For a lot of different reasons, it makes sense to make this promise. It is usually a condition to receiving the investor’s capital, so there’s that.
You’ve developed your idea into a business. It’s taken a lot of sweat and hard work, and there have been more than a few rough spots. Acquirers are now taking note and making inquiries. Maybe investment bankers are courting you. You have arrived!! Well, almost . . . .
Potential investors usually request an “Executive Summary” prior to meeting with new startups. The Executive Summary is a one- to two-page document that covers the aspects of the startup that investors care about most, including the concept, the market need and opportunity, and the startup team.
A business plan is a living document that serves as a blueprint to help you build your company. More than that, a business plan is a tool to help you think hard, and clearly, about what you’re trying to achieve, the market opportunity, the potential threats to success, and how to overcome them. How detailed is your business plan, and how much time you invest in it, are matters of choice. And there are some who question the merits of doing a business plan at all.
Many entrepreneurs are wondering when they will get to take advantage of those parts of the JOBS Act that were heralded as new catalysts for start-up equity financing, particularly those sections of the Act engineered to permit crowdfunding and the advertising of certain private equity offerings under the SEC’s Rule 506.
Some interesting stats from The Silicon Valley Bank’s Startup Outlook report based on their survey of private companies across the U.S. in the software, life science, hardware and cleantech sectors. More than 750 companies completed the survey in December 2012.
In response to the question, “What piece of advice would you give to President Obama with regards to supporting the innovation economy,” startup executives had this to say:
We have covered in past FTTWs how to value your startup and how much capital to raise. Once your startup decides to pursue equity financing, you should start to prepare for the investor due diligence process. On the business side, you will need to prepare a business plan and should take steps such as obtaining management references, interviews and background reviews, customer/user references, technical/product reviews, financial statements and business model reviews.
“Vesting” is a term of art that is often glossed over by new entrepreneurs as they grapple with other newer and scarier terms to which they are being introduced as they start their companies, like “pre-money valuation,” “fully-diluted capitalization” and “broad-based weighted average antidilution adjustments.” However, I think it is good for entrepreneurs to have a thorough understanding of what vesting means.
Convertible notes are a common structure for private company financings, most often for early stage companies trying to raise $1 million or less (see “Your First Vehicle for Fund Raising: Convertible Notes or Preferred Stock”). Here is a summary of the types of terms for such financings, and a quick primer on what to look out for if you’re considering this type of funding.