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.
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.
You hear a lot of jargon in the world of technology startups and venture capital, and “fully-diluted capitalization” or “on a fully-diluted basis” are some of those terms that get thrown around a lot, but often times are not fully understood.
If the shares of stock you acquire in your startup are subject to vesting (or a “substantial risk of forfeiture” as the IRS calls it), then you typically want to make what is called an 83(b) election.
When founders launch their new startup, optimism is typically running rampant. However, it is not uncommon for one or more founders to leave the very startups they launch within the first few years.
One of the first questions an entrepreneur must address when launching a technology startup is how the company will be funded during its early stages.
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