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AlphaTakes – Determining the Size of the Stock Option Pool

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)

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)

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

In this AlphaTakes video, you will learn about the incorporation process for C corporations, and why it is important to complete the incorporation formalities properly.

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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AlphaTakes – Convertible Debt Financing Term Sheets

In this AlphaTakes video, you will learn about convertible debt financings for an emerging technology company and the key terms that are typically negotiated in a convertible debt term sheet. You will learn about the financial and procedural terms and how they will impact you and your emerging technology company.

Convertible debt financings are a common type of bridge financing for emerging technology companies.  In this AlphaTakes video, Matt Storms discusses term sheets for convertible debt financings for an emerging technology company.  He provides a summary of the common key financial and procedural terms that are typically negotiated.

Here are the key takeaways from this video:

    (1)  The convertible debt term sheet for an emerging technology company should be relatively simple and short

    (2)  The key financial term in a convertible debt transaction is typically the size of the discount off the next round’s price or the warrant coverage amount

    (3)  The key procedural terms in a convertible debt transaction typically include the definition of a “Qualified Financing” and the ability to change the transaction documents with less than unanimous approval of the noteholders

 

 

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AlphaTakes – Liquidation Preferences

So, what is a liquidation preference? A liquidation preference is a right to all or a portion of the assets of a company upon its sale over the rights of others. The liquidation preference can be a basic preferential right like that of preferred stock over common stock, or the liquidation preferences can be very complex with multiple layers of preferences and priorities with several series of preferred stock.

In this AlphaTakes video, Matt Storms discusses the basics concerning liquidation preferences. He provides a summary of the different types of liquidation preferences that are typically negotiated in emerging technology company transactions. He also provides a spreadsheet illustration of the effects of the different types of liquidation preferences.

Here are the key takeaways from this video:

    (1) A liquidation preference is a right to all or a portion of the assets of a company upon its sale over the rights of others

    (2) The three most common types of liquidation preferences for an emerging technology company are

    (a) non-participating preferred (most common in early stage deals)

    (b) participating preferred

    (c) participating preferred with a cap

    (3) Liquidation preferences are important

 


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Board and Shareholder Approvals 101 for Emerging Technology Companies

This article outlines the basic Board and Shareholder approval requirements of typical early stage emerging technology companies.

Now that you’ve incorporated your emerging company, you may be wondering, “How often do I need to hold Board and shareholder meetings?” and “What decisions do I need to bring to the Board or the shareholders?”  These are common questions, and the answers differ company by company, to some extent.  This article is written for founders of typical early stage emerging technology companies. Continue reading →