AlphaTakes – The Basics of Capitalization Tables

by AlphaTech

In this AlphaTakes video, paralegal Macy Stoneback provides a brief summary of the capitalization table (“cap table”) for an emerging technology.

Here are the key takeaways from this video:

    (1) The cap table shows the outstanding equity of the company as of a given date, broken down by shareholder and equity type.

    (2) Officers refer to cap tables often when considering issuing equity to employees, advisors, and others.

    (3) A pro forma cap table can be prepared to see how shareholders and option holders are affected by actions like adding shares to the stock incentive pool, raising a round of financing

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AlphaTakes – Most Common Types of Securities Issued in Investor Financings

by AlphaTech

In this AlphaTakes video, Matt Storms discusses the most common types of securities issued in investor financing of privately held emerging technology companies. Since most emerging technology companies are organized as corporations due to investor requirements, he is going to focus on the types of securities issued by corporations.

Here are the key takeaways from this video:

    (1) Common stock is the base form of security issued and is typically sold to founders and friends and family.

    (2) Convertible debt is the most frequently used security in between priced financing rounds.

    (3) Convertible preferred stock is the security of choice for angels and institutional investors.

    (4) Other forms of securities include convertible equity and preferred stock without a conversion feature.

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AlphaTakes – Anti-Dilution Provisions

by AlphaTech

In this AlphaTakes video, Matt Storms discusses anti-dilution provisions in investor transactions involving an emerging company.  He outlines the different types of anti-dilution protection provisions that are typically negotiated and how they commonly impact the company.

Here are the key takeaways from this video:

    (1) Anti-dilution provisions contain rights in which the company provides some level of downward price adjustment to the holders of the rights in the event that the company sells securities at a lower price

    (2) The two most common types of anti-dilution provisions are full ratchet and weighted average, with weighted average being used in the overwhelming majority of circumstances

    (3) The exceptions or carveouts to the anti-dilution adjustments can be important in negotiating anti-dilution provisions

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AlphaTakes – Determining the Size of the Stock Option Pool

by AlphaTech

In this AlphaTakes video, Meechie Pietruczak discusses calculating the number of shares in an emerging technology company’s option pool.

Here are the key takeaways from this video:

  1. Emerging technology companies usually create stock option pools to compensate and incentivize employees, directors, consultants and other independent contractors.
  2. The size of the option pool is typically calculated as a percentage of all capital stock, which is often in the range of 10 to 20%.
  3. The size of the option pool may have a significant impact on the price per share paid by an investor.

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AlphaTakes – Series A Preferred Stock Term Sheet (part two)

by AlphaTech

In this second of a two part AlphaTakes video series, Matt Storms discusses the second half of the Series A Preferred Stock term sheet for an emerging technology company, using the Series A term sheet published by the National Venture Capital Association.

Here are the key takeaways from this video:

  1. The three most common alternatives to anti-dilution provisions:
    • Weighted average
    • Full ratchet
    • No anti-dilution provisions
  2. Several provisions are not typically heavily negotiated in Series A financings:
    • Pay to play requirements
    • Attorneys’ Fees
    • Registration rights
    • Participation rights
    • Drag-along rights
    • No shop requirements
  3. Keep an eye on the big picture

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AlphaTakes – Series A Preferred Stock Term Sheet (part one)

by AlphaTech

In this first of a two part AlphaTakes video series, Matt Storms discusses the first half of the Series A Preferred Stock term sheet for an emerging technology company.  He provides a summary of some of the key terms of the Series A term sheet, using National Venture Capital Association (“NVCA”) model document.

Here are the key takeaways from this video:

  1. The NVCA documents are great resources for understanding the Series A financing, but are fairly investor friendly.
  2. Typical preferred stock dividend provisions alternatives include the following:
    • If and when paid to the common stock
    • Accruing and cumulative
    • If and when declared by the board
  3. Most common preferred stock liquidation preferences alternatives include the following:
    • Non-participating preferred
    • Participating preferred
    • Participating preferred with a cap
  4. Preferred stock typically includes special voting rights, such as designating one or more members to the company’s board of directors and veto rights over certain company actions.

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AlphaTakes – Incorporation Process for an Emerging Technology Company

by AlphaTech

Understanding the incorporation process is important for emerging company founders. In this AlphaTakes video, Macy Stoneback describes the incorporation process for a typical emerging technology company. She explains some reasons why it is important to properly complete the incorporation formalities:

  • Help ensure limited liability protection
  • Avoid delays and expense at the time of financing or sale in fixing matters that were not properly addressed at the time of incorporation
  • Set founder expectations

 

 

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