Dividends
Posted on 04. Aug, 2008 by squareroots in Graphical Examples
Dividends are an extension of the Liquidation Preference. Dividends for early stage companies are not typically paid out until an exit event. When they are paid, such as when the company is acquired, they combine with the liquidation preference and are paid before any common shareholders receive proceeds.
Let’s take an example. [...]
Liquidation Preference
Posted on 31. Jul, 2008 by squareroots in Graphical Examples
Liquidation Preference is a multiple on the amount invested for a given round. An example of an exit event (e.g. the company is sold) provides for the easiest explanation. Let’s assume a company raised $2M on a $4M pre-money valuation. After the financing the investors own 33% of the company’s outstanding shares. However, if the [...]
Tax implications
Posted on 09. Jul, 2008 by squareroots in Formation
LLC (Limited Liability Company)
An LLC is the more flexible of the two types of entity discussed in this article (LLC and S-Corp). In essence, you can have any tax treatment you want. A couple of examples:
All tax write-offs (during periods of losses) to someone who hasn’t contributed capital, or to someone who has only provided [...]
Picking a law firm
Posted on 09. Jul, 2008 by squareroots in Formation
An important aspect of finding a good law firm is to verify that they are “plugged-into” the investment community where you want to raise money. This means that they have a track record forming companies that take investor money, preferably Venture Capital as this is the most sophisticated type of early-stage investor.
The implications for using [...]
Term Sheet: Indemnification and Assignment
Posted on 07. Jul, 2008 by squareroots in Preferred Stock Rights
Originally posted on Feld Thoughts “Term Sheet: Indemnification and Assignment” by Brad Feld, reposted with permission.
“Indemnification: The bylaws and / or other charter documents of the Company shall limit board member’s liability and exposure to damages to the broadest extent permitted by applicable law. The Company will indemnify board members and will indemnify each Investor [...]
Term Sheet: No Shop Agreement
Posted on 07. Jul, 2008 by squareroots in Term Sheets
Originally posted on Feld Thoughts “Term Sheet: No Shop Agreement” by Brad Feld, reposted with permission.
As an entrepreneur, the way to get the best deal for a round of financing is to have multiple options. If you’ve been a studious reader of our term sheet series, you are painfully aware that there are many other terms [...]
Term Sheet: Initial Public Offering Shares Purchase
Posted on 07. Jul, 2008 by squareroots in Preferred Stock Rights
Originally posted on Feld Thoughts “Term Sheet: Initial Public Offering Shares Purchase” by Brad Feld, reposted with permission.
Jason and I are planning to finish strong with some serious stuff in our term sheet series, but we figured we’d put one more term in that has us sniggling whenever we see it (a “sniggle” is a combination [...]
Term Sheet: Founders Activities
Posted on 07. Jul, 2008 by squareroots in Governance and Control
Originally posted on Feld Thoughts “Term Sheet: Founders Activities” by Brad Feld, reposted with permission.
I’m going to keep tonight’s term sheet post short and sweet, especially since I’m still reeling from the horrifyingly bad War of the World movie I just saw. Jason and I are almost done with the term sheet series (yeah, we know we keep promising [...]
Term Sheet: Restriction on Sales, Proprietary Inventions, and Co-Sale Agreement
Posted on 07. Jul, 2008 by squareroots in Preferred Stock Rights
Originally posted on Feld Thoughts “Term Sheet: Restriction on Sales, Proprietary Inventions, and Co-Sale Agreement” by Brad Feld, reposted with permission.
I had good intentions earlier this week to try to crank out the balance of the term sheet series, but it turned into a busy week. Since I’m still muddling through the set of terms [...]
Term Sheet: Employee Pool
Posted on 07. Jul, 2008 by squareroots in Levers of Valuation
Originally posted on Feld Thoughts “Term Sheet: Voting Rights and Employee Pool” by Brad Feld, reposted with permission.
“Employee Pool: Prior to the Closing, the Company will reserve shares of its Common Stock so that __% of its fully diluted capital stock following the issuance of its Series A Preferred is available for future issuances to directors, [...]