In the world of venture capital financing, one of the most important terms, behind price/valuation, is liquidation preference. As a startup company founder, having a solid understanding of liquidation preference is incredibly important, as it could mean the difference between whether or not you collect any proceeds from a sale of your company.
The Securities and Exchange Commission (“SEC”) is taking a fresh look at the “accredited investor” definition with regard to Rule 506 (the securities registration exemption upon which most startups rely when raising angel and venture capital money). This could affect your ability to raise money for your startup.
There is a tried and true structure for capitalizing a technology startup: conventional common stock to the founders, conventional common stock reserved for employees in a stock option pool, and preferred stock to investors.
For most high growth emerging technology startups, equity is cheaper than cash when it comes to compensating employees.
In most jurisdictions, all you need to do to legally incorporate is submit your articles of incorporation to the Secretary of State of the jurisdiction in which you want to incorporate and adopt a set of bylaws, and many online companies (and attorneys) will take care of these two things for you for a nominal price.
In the world of convertible debt, arguably the single most important term for both the startup and the investor is the provision concerning when and how the investor’s convertible promissory note converts into equity.
Founders of technology startups often believe that their interests are aligned with those of their investors, and that belief is generally true. However, there are many situations where the interests of the founders and other shareholders differ from those of the outside investors.
Par value. It’s a concept that many entrepreneurs see in their corporate documents, but few truly understand. What is par value? What does it mean when you see it in your documents?
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