Liquidation Preference: Accrued and Unpaid Dividends
The term of the liquidation preference will almost always say that it is for the original purchase price (or a multiple of the purchase price) “plus accrued and unpaid dividends.” The addition of the “accrued and unpaid dividends” to the liquidation preference in most cases does not have any impact because venture capital investors do [...]
Continue ReadingLiquidation Preference: Nonparticipating vs. Participating
As mentioned in the “Liquidation Preference 101” post, liquidation preferences can either be participating or nonparticipating. A nonparticipating liquidation preference only gives the preferred stock a liquidation preference over the common stock equal to the per share price the investor paid (or some multiple of that per share price). The effect of a nonparticipating liquidation [...]
Continue ReadingLiquidation Preference 101
A liquidation preference gives the preferred stock the right to get paid before the common stock. It sets forth the order of return to the investors triggered by certain events such as a liquidation, dissolution, merger, acquisition or sale of all, or substantially all, of its assets. The liquidation preference outlines who will get paid [...]
Continue ReadingDilution by Definition of Fully-Diluted Basis
As I mentioned in a recent post, most venture capital financing deals will calculate the per share price on a fully-diluted basis. The definition of this basis must be set forth clearly from the outset. Does it only include issued and outstanding options, warrants and other convertible securities? Or, does it also include all unissued [...]
Continue ReadingSample Term Sheet — PDF Copy
Here is a pdf version of the sample term sheet for a Series A Preferred Stock financing. Click on this link: Memorandum of Terms — Series A Preferred Stock Financing
Continue ReadingValuation Language: Calculating Per Share Price on a Fully-Diluted Basis
The price per share of the Series A Preferred Stock that the venture capital investor is willing to pay is equal to the pre-money valuation of the company divided by the total number of shares outstanding. Per share price = pre-money valuation / total number of shares outstanding For example, if TechStartup, Inc. has a [...]
Continue ReadingUnderstanding the Valuation Language: Pre-money vs. Post-money
Before we start a discussion on the different terms of a venture capital financing, it is important that every startup seeking VC financing understand the basic language of valuation. What does the VC mean when he says that he is ready to make an investment based on a “pre-money valuation of $8 million” or a [...]
Continue ReadingA Sample Term Sheet for a Venture Capital Financing in a Technology Startup Involving Series A Preferred Stock
To set the ground work to begin a series of posts on the numerous different terms in a typical venture capital financing involving the sale of preferred stock, below is a sample term sheet to get us started. Some of the terms may not be necessary or appropriate in a certain financing, but, at least, [...]
Continue ReadingVenture Capital Firm Reviews
I just read an article in Wired Magazine that was pretty interesting. It was a story on a website called TheFunded.com that was started the beginning of this year by Adeo Ressi. It is a site for startups to anonymously review and rank venture capital firms. I think it is a very interesting concept. The [...]
Continue ReadingVenture Capital Financing Trends
Wilson Sonsini Goodrich & Rosati, a corporate law firm in Palo Alto, has recently published “Private Company Financing Trends” for 2005 to Q1 2007. This is a useful resource for any startups looking for venture capital funding. This will give technology startups a good starting point to decide the terms of any financings with venture [...]
Continue ReadingTalking Points
- Angel Investors — Who are they?
- Dilution by Definition of Fully-Diluted Basis
- Sample Term Sheet — PDF Copy
- Liquidation Preference 101
- Liquidation Preference: Nonparticipating vs. Participating
- Liquidation Preference: Capping It
- Issuing Founders’ Stock: Purchase Price
- Incorporating a Technology Startup: Getting the EIN
- Incorporating a Technology Startup: Checklist of Documents
- Liquidation Preference: Accrued and Unpaid Dividends
About Sam Wu
An attorney with Innovation Capital Law Group, Sam Wu has extensive experience representing technology and emerging growth companies throughout all stages of development including corporation formation, angel investment, venture capital financings, merger and acquisitions and initial public offerings. Sam has represented recognized companies such Polycom, Autodesk, TopTier Software, Virage, Autoweb, Informatica, PeoplePC and Atmel Corporation. Sam has also represented investment banks (such as Credit Suisse, Morgan Stanley and Goldman Sachs), entrepreneurs, technology and emerging growth startups, venture capital firms and angel investors.
- Angel Investors — Who are they?
- Issuing Founders’ Stock: Purchase Price
- Incorporating a Technology Startup: Getting the EIN
- Incorporating a Technology Startup: Checklist of Documents
- Liquidation Preference: Capping It
- Liquidation Preference: Accrued and Unpaid Dividends
- Liquidation Preference: Nonparticipating vs. Participating
- Liquidation Preference 101
- Dilution by Definition of Fully-Diluted Basis
- Sample Term Sheet — PDF Copy
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