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TAG: Equity

12
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0
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You Don't Own What You Think: Percentages Lie

TheFunded.com Advice

Posted by EZ-stuff on 2008-04-21

Tags: Negotiation Terms Equity

PUBLIC:

You have a piece of paper or a spreadsheet that shows how much you own of your company, normally called a capitalization table. You may have common stock. You may have options. When you take a venture round, the capitalization table neither represents your ownership nor the allocation of shareholder value. Most of the terms that create the Preferred Stock for venture capitalists chip away at the value of common stock and options, so much so that, after a few rounds of investments, the value of common and options are largely worthless. Let's take a look at why and what can be done.

There are the obvious "big" preferred terms that eat away at shareholder value in most liquidity events, such as promising to re-pay the investment first through a "liquidation preference" and then allowing the venture investors to "participate" in the remaining value allocation. Another classic term is to place founder equity in escrow and force the founder to earn it back over years. Then, there are the slew of other terms that reallocate smaller chunks of value, such as cumulative dividends, redemption rights, ratchets, right of first refusals, and expense reimbursements. Finally, there are the many uncertain outcomes, such as allocating escrow to a preference waterfall, that force last minute negotiations where the preferred shareholders have control in many liquidity situations.

Here are some tips for a management team to retain value AND ownership through the process:

(1) Encourage competitive bidding among interested investors

(2) Raise more money than you need and limit the number of investment rounds to two

(3) Eliminate all secondary terms from term sheets and investment agreements

(4) Control a majority of the board under all circumstances

(5) Insist on executed employment contracts with equity and cash guarantees on liquidity

(6) Add mandatory preferred approval of liquidity offers at pre-defined prices

If other people have tips. add them below. It is about time that the capitlization table represents reality!

PRIVATE: Members Only

9
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0
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"Venture Capitalists Make Sheep Look Like Independent Thinkers"

TheFunded.com Discussion

Posted by Anonymous on 2009-01-22

Tags: Venture Business Trends Private Equity

2
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0
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Would You?

TheFunded.com Discussion

Posted by Anonymous on 2010-06-15

Tags: Preparation Incubators Equity

2
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0
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Loi From a Large Private Investor

TheFunded.com Discussion

Posted by Anonymous on 2009-02-08

Tags: Negotiation Equity Terms

2
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0
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Anyone Know How Much Equity Ownership to Give to Your Advisors?

TheFunded.com Discussion

Posted by Anonymous on 2009-01-08

Tags: Operations Advisor Equity

1
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0
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General Equity

TheFunded.com Discussion

Posted by Anonymous on 2011-04-14

Tags: Equity

1
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0
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Reasonable Equity % as First Employee?

TheFunded.com Discussion

Posted by Anonymous on 2011-03-31

Tags: Equity Employee

1
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0
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How Much Equity Should I Give?...And at What Rate?

TheFunded.com Discussion

Posted by Anonymous on 2011-02-09

Tags: Equity

1
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0
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How Much Equity to Share with a Very Close and Helpful Advisor?

TheFunded.com Discussion

Posted by Anonymous on 2009-12-09

Tags: Negotiation Equity Advisor

1
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0
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Appropriate Size of Equity Grant for Employee Coming on Pre Funding

TheFunded.com Discussion

Posted by Anonymous on 2009-02-03

Tags: Operations Equity Employees

1
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0
Disagree

Equity for Developers

TheFunded.com Discussion

Posted by Anonymous on 2009-02-02

Tags: Operations Equity Employees

1
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0
Disagree

Secondary Selling

TheFunded.com Discussion

Posted by Anonymous on 2009-02-02

Tags: Operations Founders Equity

1
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0
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A question about First Round and Y Combinator ?

TheFunded.com Discussion

Posted by Anonymous on 2009-01-27

Tags: Preparation Equity

1
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0
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Alternate Currency Other Than Cash

TheFunded.com Discussion

Posted by Anonymous on 2009-01-01

Tags: Operations Compensation Equity

1
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0
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Anyone Ever Offer Different Price Per Share for the Same Round of Investment?

TheFunded.com Discussion

Posted by Anonymous on 2008-12-20

Tags: Negotiation Valuation Equity

1
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0
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Reverse Stock Split... Why?

TheFunded.com Discussion

Posted by Anonymous on 2008-12-11

Tags: Negotiation Equity Reverse Stock Split

1
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0
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Funders Request to Renegotiate a Series

TheFunded.com Discussion

Posted by Anonymous on 2008-11-08

Tags: Operations Equity Renegotiation

1
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0
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Is There a Market to See Pre Ipo Shares?

TheFunded.com Discussion

Posted by Anonymous on 2008-09-06

Tags: Operations Secondary Private Equity

1
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0
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Partial Cash Out of Founders Shares

TheFunded.com Discussion

Posted by Anonymous on 2008-08-16

Tags: Negotiation Equity Liquidity

1
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0
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Equity Compensation

TheFunded.com Discussion

Posted by Anonymous on 2008-07-29

Tags: Operations Compensation Equity

1
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1
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Would You 'Pool' Some of Your Founders Stock with Other Founders to Share Risk/Reward

TheFunded.com Advice

Posted by chimala on 2008-06-18

Tags: Operations Founders Equity

PUBLIC:

You probably heard of this concept - founders of VC funded startups contribute some of their stock to a 'fund' and thereby share the risk/reward. This kinda works like an insurance in case your startup goes to the dead pool.

The question is, as a startup entrepreneur, would you be in favor of such a proposal"

PRIVATE: Members Only

0
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CEO Been Driving Business for 5 Years. Looking for Follow on Equity and Need Advice

TheFunded.com Discussion

Posted by Anonymous on 2011-07-27

Tags: Advice Equity Follow-on

0
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0
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Board Seat Equity?

TheFunded.com Discussion

Posted by Anonymous on 2011-06-22

Tags: Equity Board

0
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0
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Advice Needed: Equity for Legal Work

TheFunded.com Discussion

Posted by Anonymous on 2011-06-01

Tags: Legal Equity Advice

0
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0
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Fair Equity for Hiring Execs Post Series A

TheFunded.com Discussion

Posted by Anonymous on 2011-05-30

Tags: Hiring Series A Equity