Levers of Valuation
Posted on 28. Oct, 2008 by admin in Levers of Valuation
A common mistake is to only focus on the pre-money valuation when negotiating with investors/entrepreneurs. Initially we will look at 6 "Levers of Valuation" that affect a typical investment in an early stage company. This is not the complete list, but a good introduction to the concept.
Pre-money valuation
Investment amount
Option Pool creation
Liquidation Preference
Dividends
Convertible vs. Participating Preferred [...]
Valuation of the seed round with friends and family
Posted on 06. Oct, 2008 by squareroots in Pre Venture Capital
The balance between the founders and the investors is critical for any early stage company. This is true even with investments from friends and family. Consider two situations:
High pre-money valuation
Example: a pre-money valuation of $10M for a pre-revenue software company. Although this would appear to favor the company and the founders, what may result is [...]
Types of Preferred and Common Stock
Posted on 02. Oct, 2008 by squareroots in Term Sheets
Types of Common Stock:
Founder’s Stock (owned outright from formation, no vesting)
Restricted Stock (same as founder’s, but with vesting)
Option Pool (usually for incentive plans)
Types of Preferred Stock
Convertible Preferred
Participating Preferred
Types of Stock Options
Incentive Stock Options (ISO)
Non-qualified Stock Options (NSO)
NOTE on Preferred Stock
Preferred Stock is different than stock market, as it includes:
Conversion Rights (go from Preferred to Common)
Liquidation [...]
Warrants vs. Stock Options
Posted on 01. Oct, 2008 by squareroots in Term Sheets
While many people are familiar with stock options, fewer are familiar with warrants. Warrants are widely used in the startup world by investors, so it is important for entrepreneurs to understand their nuances.
Let’s start with stock options. Stock options are created from the Option Pool, which was described in an earlier post. Warrants are not [...]