Investor-backed, high-growth companies traditionally offer employees the opportunity to own company stock. Employee ownership can align employees toward valuation growth, and gives cash strapped growing companies a way to compete for talented employees. For the employee founders of the company, stock is issued at or near incorporation. For employees that join later, the typical way to offer equity ownership to Read More
Preferred Stock vs. Common Stock
All companies have common stock. For many companies, that may be the only class of stock. However, when the time comes to bring in outside financial investors, the most common class of stock to issue is preferred stock. The use of preferred stock provides several benefits to investors, which make the investment more attractive, and presents both advantages and disadvantages to holders of common stock. The Benefits of Read More
Cap Table Basics: Making Room For New Stockholders
For an investor-backed, high-growth company, issuing stock, to existing and new stockholders, will be a regular occurrence. Raising money through equity financings is the primary time stock is issued, but companies will also issue stock (or stock options) to employees, consultants and others who contribute value to the company. For companies going through a financing or stock issuance for the first time, the impact Read More
Cap Table Fundamentals: Authorized Shares v Outstanding Shares
As almost everyone knows, companies are owned by stockholders and that ownership is represented by shares of stock. However, legal terminology used to describe stock ownership, and how to determine and set up ownership, can be confusing both to new and experienced founders and investors alike. For this blog, we will look at the difference between “authorized” and “outstanding” shares. The number of shares Read More
The First Fork In The Road For Investor-Backed High-Growth Companies
Investor-backed companies face a myriad of critical decisions throughout the life of their business. One of the earliest is what kind of legal entity to establish. As a practical matter, most investor-backed companies will elect to establish themselves as a limited liability company (LLC) or a corporation. This choice will set the foundation for the future and form the basis for liability protection, stakeholder Read More
Stock Valuation Issues
For most high-growth companies, the ability to offer equity to founders, employees, consultants, advisors, directors, and others is often critical for success. Equity-based compensation can align interests, keep everyone motivated to ensure the enterprise’s success, and allow companies that can’t afford to compete on salary to attract top-quality talent. However, to use issue stock, options, or other equity-based Read More
Advisor Compensation
Advisors often play a central role in the success of a high-growth startup. Whether providing technical and operational guidance or making introductions to potential employees, customers, partners, and investors, the right advisor can help accelerate the success of a startup. For several reasons, it is typical for early-stage companies to compensate advisors using equity rather than cash. This blog post assumes that Read More
