Raising seed capital
Explaining convertible debt
Common stock vs. preferred stock
How liquidation preferences work
Deciphering a preferred stock term sheet
Valuation caps on convertible notes
Raising seed capital
You generally have four different options for how to structure your seed financing: , debt, and . For business, tax and other legal considerations, however, using
Explaining convertible debt
Seed-stage investments are often structured as convertible loans. Investors loan money to the company. In exchange, the investors receive convertible promissory notes. When the company later sells in its next financing, the loan will automatically convert into shares of that same series of
Common stock vs. preferred stock
is so named because it is just that—common. Common stock isn’t generally accompanied by any special rights, preferences or privileges; it lacks the bells and whistles that are usually attached to
How liquidation preferences work
The “liquidation preference” is the amount of proceeds from a sale or of the company that the preferred shareholders will receive before the common shareholders are entitled to receive anything. Read More...
Deciphering a preferred stock term sheet
for venture capital financings include detailed provisions describing the terms of the being issued to investors. Some terms are more important than others. The following brief description of certain material terms divides them into two categories: economic terms and control rights. Read More...
Valuation caps on convertible notes
Whether a company should agree to a valuation cap in a convertible note will depend on its particular circumstances. From the company’s perspective, it is better to exclude a valuation cap, because it the investor down-side protection but has no benefit to the company. However, it may not be possible to exclude the cap if the investors condition their investment on including a cap and the company needs the money to fund its operations. Before making a decision, a company should consider the pros and cons of agreeing to a valuation cap. Read More...
