Start-Up Entrepreneur Series: Preferred Stock

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses.  

The Start-Up Entrepreneur Series will be published each Wednesday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Unless your new start-up is fully capitalized by its Founders, one of the first questions a new company must ask itself is “How are we going to fund this thing?”.

Last week we discussed the most common preliminary funding mechanism: “convertible debt“.  Today, we’ll talk a bit about the primary form in which institutions invest in start-ups: “preferred stock”.

Start-Up Entrepreneur Series: Convertible Debt

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses.  

The Start-Up Entrepreneur Series will be published each Wednesday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Unless your new start-up is fully capitalized by its Founders, one of the first questions a new company must ask itself is “How are we going to fund this thing?”.

Over the next few weeks, we’ll be looking into different funding avenues available to the start-up entrepreneur, as well as at the various types of investors from which a company might pursue those funds.  And for more in-depth analysis of preferred equity financings in particular, be sure to check out our Financing Term Sheet Deep Dive Series.

Today, we’ll talk a bit about one of the most prevalent forms of early fundraising: “convertible debt”.

Start-Up Entrepreneur Series: 83(b) Elections

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses.  

The Start-Up Entrepreneur Series will be published each Wednesday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Two weeks ago, we discussed considerations associated with the issuance of Company stock to Founders.  One of these considerations was the concept of “vesting”. To quote this very blog:

“Vesting” is a fancy legal term for a number of separate, but interrelated concepts related to giving back stock if a purchaser (or grantee) either leaves a relationship with the company (time-based vesting) or doesn’t do what they said they were going to do (milestone-based vesting).

In short, while a Founder receives stock (or “units of interest” in a limited liability company), the Founder is not secure in his or her ownership of that stock until it is “vested”.  Prior to that point, such stock may be forfeited (or repurchased at below market cost) by the Company.

Which raises the age-old question: What about taxes?