What is preferred stock and why is it issued to investors? : Sta Browse > Home / Series A / What is preferred stock and why is it issued to investors? Preferred stock generally has rights senior to common stock. Startup companies typically issue common stock to founders (and options to purchase common stock to employees) and preferred stock to investors. One reason for issuing preferred stock to investors is to preserve the ability of a company to issue options to purchase common stock at an exercise price at a significant discount from the preferred stock price. If a company issued common stock to investors, then the exercise price of options to purchase common stock would generally need to be the same price as the price to investors. Another reason that investors purchase preferred stock is to receive rights, preferences and privileges senior to common stock. Comments
How Funding Works - Splitting The Equity With Investors - Infographic A hypothetical startup will get about $15,000 from family and friends, about $200,000 from an angel investor three months later, and about $2 Million from a VC another six months later. If all goes well. See how funding works in this infographic: First, let’s figure out why we are talking about funding as something you need to do. This is not a given. If you know the basics of how funding works, skim to the end. Every time you get funding, you give up a piece of your company. Splitting the Pie The basic idea behind equity is the splitting of a pie. When Google went public, Larry and Sergey had about 15% of the pie, each. Funding Stages Let’s look at how a hypothetical startup would get funding. Idea stage At first it is just you. Co-Founder Stage As you start to transform your idea into a physical prototype you realize that it is taking you longer (it almost always does.) Soon you realize that the two of you have been eating Ramen noodles three times a day. Registering the Company
5 Ways To Raise Funds for Your Startup Bill Clark is the CEO of MicroAngel Capital Partners, a venture firm that gives more investors access to alternative investments. He also gives investors the ability to invest in startups online through crowdfunding. You can follow him on Twitter @austinbillc. Raising capital can be the hardest step in launching a startup. You can be passionate about your idea and convince a lot of people that it will be the next big thing, but it takes the right person to ask for money and close the deal. Here are five options to explore. 1. People like to invest not only in the idea but in the person. There are some negative sides of having your family or friends invest in your company. 2. If you can get your startup into an incubator program like Y Combinator, TechStars or 500 Startups, you will get more than just money. 3. Startups generally offer preferred shares when they raise money. 4. Convertible debt is popular because you don’t have to set a valuation. 5. Image courtesy of Flickr, lalunablanca
Angel Resource Institute Topics: Angel Research, Angel Groups, Angel Market Data, Valuation Summary: The 2012 Halo Report is a collaborative project of Angel Resource Institute, Silicon Valley Bank, and CB Insights. The Halo Report provides on-going trends of angel group activities in US companies. ARI (n.d.). 2012haloreportinfographic [Article]. Retrieved from ARI. “2012HaloReportInfographic” ARI. n.d.. Grant-making bodies and charitable trusts - Make Space We aim to make sure that our information about funding is accurate and up to date. However, please do check the situation with the funding organisation too. Garfield Weston Foundation Funding: Majority of grants under £10,000 with grants of up to £250,000 for larger organisations, with some exceptions Funder: The Garfield Weston Foundation What projects does it support? Deadline Applications are accepted at any time.How to apply www.garfieldweston.org/policy/Contact 020 7399 6565 BBC Children in Need Funding: Grants range from a few hundred pounds to a maximum of £100,000Funder: The BBCWhat projects does it support? Deadline There are two application deadlines per year, 30 March and 30 November.How to apply For non-profit organisations based in the UK, visitwww.bbc.co.uk/pudsey/grants/Contact 020 8008 3155 or Pudsey@bbc.co.uk Esmée Fairbairn Foundation Funding: Average grant size of £79,000 as of 2010 Funder: The Esmée Fairbairn Foundation What projects does it support? Hilton in the Community
unnamed There’s this dance that entrepreneurs and venture capitalists do when it comes time to negotiate the economic terms of an investment. And it all revolves around valuation. The question is what is the fair value of the business? But I think the concept of valuation is often misunderstood by the people engaged in this process. I do not believe that negotiating a valuation on an early stage venture investment has much to do with the current value of the business. The fact is that almost all venture capital deals are done as convertible preferred stock investments. It’s only in the event that the deal works out that the percentage of the business (the thing that valuation is supposed to determine) matters in terms of how much money we make. Another important factor to consider is that only a relatively small portion of early stage venture investments really work out in the way they were supposed to when the investment was made. The 1/3 rule goes as follows: 1/3 of the deals turn out badly.
The Equity Equation July 2007 An investor wants to give you money for a certain percentage of your startup. Should you take it? You're about to hire your first employee. These are some of the hardest questions founders face. 1/(1 - n) Whenever you're trading stock in your company for anything, whether it's money or an employee or a deal with another company, the test for whether to do it is the same. For example, if an investor wants to buy half your company, how much does that investment have to improve your average outcome for you to break even? In the general case, if n is the fraction of the company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). For example, suppose Y Combinator offers to fund you in return for 6% of your company. One of the things the equity equation shows us is that, financially at least, taking money from a top VC firm can be a really good deal. Of course, there are other factors to consider in a VC deal. Let's run through an example. Notes
Kickstart Seed Fund - What We Look For "Wanted. Crew for hazardous journey, small wages, bitter cold, long months of complete darkness, constant danger, safe return doubtful, honor and recognition in case of success." In 1907, Ernest Shackleton issued a challenge: journey with him, literally, to the ends of the earth. This would be a perilous trek where failure was possible, even likely. However, if the voyage was successful, fame and glory would be assured. This challenge is familiar territory for any entrepreneur. At Kickstart, we recognize and accept risk; nevertheless, we look for several factors to help anticipate and mitigate these challenges. Human Capital Matters: We invest in people, not technology. Listening: We have yet to see an entrepreneur succeed without being able to listen -- to customers, employees and sometimes even investors. Transparency: Integrity, openess, and honesty are essential. Large Market: A large market provides a cushion and mitigates unforeseeable risks.
Funders and Founders - Visual Startup Blog Inside Startups • 10 Reasons To Start Up In The UK The UK is increasingly seen as a hub of entrepreneurship comparable to Silicon Valley or the US East Coast. It’s never been a better time to launch a startup in the UK and here’s why. 1. Corporate careers aren’t what they used to be Imagine embarking on a career at Tesco or Barclay’s in your first year after graduation; it will be years before you’ve risen to a level at which you can claim to own a part of the business. At a startup you may have equity as well as a salary, making you a part-owner of the business. Diana Proca, founder of WorkInStartups, describes the motivation as: “having an actual impact on the business that you work for, influencing it in a significant manner.” She goes on to suggest that the corporate career ladder is not as secure as it once was: “Corporations cannot offer financial security in this time of crisis, as they will discharge employees each time the business needs it. 2. “I remember playing all those guessing games. 3. As Jamie Cooke at the RSA puts it: 4. 5.
Venture Capital Deal Algebra Fred Wilson wrote a useful post on valuation today. It reminded me of a document I had Dave Jilk write when he was doing some work for me. I decided to write this “bladon” (Blog Add-on) post – inspired by Fred. I’ve found that even sophisticated entrepreneurs didn’t necessary grasp how valuation math (or “deal algebra”) worked. In a venture capital investment, the terminology and mathematics can seem confusing at first, particularly given that the investors are able to calculate the relevant numbers in their heads. The essence of a venture capital transaction is that the investor puts cash in the company in return for newly-issued shares in the company. The value of the whole company before the transaction, called the “pre-money valuation” (and similar to a market capitalization) is just the share price times the number of shares outstanding before the transaction: Pre-money Valuation = Share Price * Pre-money Shares Investment = Share Price * Shares Issued $2m / ($3m + $2m) = 2/5 = 40%
How to Divide Equity to Startup Founders, Advisors, and Employees Since returning from MIT back in June I’ve been focusing on the growth of the company. It has been pretty much on mind non-stop for months now. The part that I’d like to zero in on is when you’ve got a high growth company what are some of the best practices out there to distribute equity to the founders, advisors, and employees? Equity for Founders The Founders’ Pie Calculator by Frank Demmler, an Associate Teaching Professor of Entrepreneurship at the Donald H. The idea behind the calculator is to come up with a weight for each of these five elements and then assign a value to each founder on a scale of 0-to-10. Equity for Board of Directors and Advisory Board When figuring out how to provide equity to advisors, you can use this chart as a guideline. Equity for Employees It’s important to figure out how much equity you give to your employees. By Nevi on VentureHacks.com Number of shares = Meaningless. All this information that I’ve gathered up here seems rather logical.
13 Crowdfunding Websites to Fund Your Business Who needs banks? Crowdfunding websites can help you find a community of small investors to fund your business, without the risks of traditional financing. Here is a list of crowdfunding sites. Some sites focus on funding creative projects, others sites focus on meeting specific needs in the marketplace or community. So don’t let access to capital hold you back — let the crowd fund you. 13 Crowdfunding Websites 33needs. 33needs enables everyone to invest, make a social impact, and earn financial rewards.