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.
At one time or another, most startup companies work with a consultant or enter a contract with a strategic partner and are presented with a dilemma: should the company offer equity to the consultant or strategic partner in payment for services?
One of the most common conversations I have with the founders of businesses involves how they determined a way to split the ownership amongst themselves. It is probably the first difficult decision new partners face together in starting a company. In many instances, the new founders decide that they are going to split ownership equally.
Some interesting statistics from the Halo Report for the rolling 12 month period ended June 30, 2012.
We find ourselves explaining 83(b) elections several times a week, so we thought it would be a good blog topic.
In the start-up world, the opportunity to file of an 83(b) election generally arises in the context of a founder purchasing low-priced “founder” common stock of a start-up company that is subject to vesting, or an employee, director or other service provider of such a company “early exercising” an option for stock that is subject to vesting. Such stock is sometimes also referred to as “unvested” stock or stock subject to “reverse vesting.” All this means is that…
Starting a company has many challenges—the biggest being how to attract top talent when you are cash-strapped. Many companies solve this by offering equity for services.
If there are two or more founders in a startup, an important consideration regarding the initial issuance of equity to the team is vesting of the founders’ equity.
As forecast, on March 27 the U.S. House of Representatives passed the Senate’s amended version of the Jumpstart Our Business Startups Act (the JOBS Act), clearing the way for President Obama to sign the bill into law, which he is expected to do in the coming days. The JOBS Act’s stated purpose is to spur job creation and economic growth by improving access to capital for emerging growth companies by making some of the most significant changes to the U.S. securities law landscape in over a generation.
