TAKING THE MONEY - The 411 On Startups (tm)

Due Diligence: An Entrepreneur’s Perspective

Oct

2008

Due diligence by an investor, seen from the entrepreneur’s point of view, is all good. Really. Here is an opportunity to really learn a lot about your business prospects and gain perspective. Yes, of course, some investors will use this process to see “how much they can get” and be impolite about it. Fewer than ...

Example of a Generic Capitalization Table — through multpile financing rounds

Oct

2008

This link gives an example cap table for a company that raises several rounds of money. It shows the valuation progression and the dilutive effects of each subsequent rounds.

Build your own cap table — Includes Spreadsheet Example

Oct

2008

A cap table shows you who owns what in your company. It calculates how the option pool shuffle and seed debt lower your Series A share price. This article includes a spreadsheet you can use to build your very own cap table.

Convertible Debt or Preferred Stock: which one is better?

Oct

2008

The question of whether angel investments in early stage companies should be in the form of a loan that converts (usually at a discount) into the equity, and at the valuation, of the following (usually VC) investment round, or instead in the form of Convertible Preferred stock (typical of a venture capital investment round) is ...

Private Placement of Securities (including PPM)

Oct

2008

Private placement occurs when a company makes an offering of securities not to the public, but directly to an individual or a small group of investors. Such offerings do not need to be registered with the Securities and Exchange Commission (SEC) and are exempt from the usual reporting requirements. Private placements are generally considered a ...

What is upgradeable Series A preferred stock? : Startup Company Lawyer

Sep

2008

Occasionally, I see a new provision in a term sheet, which keeps things interesting for me. I’ve decided to call this type of Series A preferred stock ‘upgradeable’ (after recently realizing that there are economy class plane tickets that aren’t upgradeable despite having system-wide upgrade certificates). The term sheet provides:

Raising Money Using Convertible Debt – Entrepreneur.com

Sep

2008

Last month, in my article about debt and equity financing, I mentioned another solution that some entrepreneurs have found to be a happy middle ground between debt financing and equity financing. That solution is convertible debt, which is simply a loan (a debt obligation) that can be turned into equity (stock ownership), generally upon the ...

Startup Pre-money Valuation: The Keystone to Return on Investment – Entrepreneurship.org

Sep

2008

For decades, experienced angel investors have intuitively used the following rules of thumb for investing in seed and startup companies: * Home runs provide all the return on investment. In a typical angel investor’s portfolio of ten investments in seed/startup companies, half the companies perish with no return to investors, and an additional three or ...

Series AA Equity Financing Documents — Y Combinator

Sep

2008

Y Combinator and Wilson Sonsini Goodrich & Rosati are happy to announce the Series AA Equity Financing Documents. Their goal is to make angel funding rounds for startups easier for both sides. These documents were originally created for YC-funded startups to use when raising angel rounds. They seem to have worked well in trial runs ...

The Option Pool Shuffle: Beat the game and raise your valuation

Aug

2008

Summary: Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation.