Angel Investors — Who are they?
You may be familiar with the term angel investors but may not be quite sure who they are or exactly how they work. Most often these angels are entrepreneurs; however, they may not be what you consider the “average” entrepreneurs. Meaning, they are quite often what is referred to as “cashed out” entrepreneurs, high net [...]
Continue ReadingIssuing Founders’ Stock: Purchase Price
The norm for technology startups is for the founders to purchase the initial common stock at a very low price at $0.01 per share or less. I usually sell the initial common stock at $0.001 per share. Part of the reason why I do this is because I like to issue each founder 1,000,000 shares of [...]
Continue ReadingIncorporating a Technology Startup: Getting the EIN
You need an EIN or employer identification number to open a corporate bank account. This is equivalent to a social security number for individuals. The form you will complete is called aForm SS-4. The easiest way to file the form is online at the IRS website. Here are a few tips for completing the form: Item 7b – you [...]
Continue ReadingIncorporating a Technology Startup: Checklist of Documents
As I begin this series of posts on incorporating your technology startup, here is a quick checklist of the documents required to complete the incorporation of your new company. I will cover the issues and components of each document in detail in the posts to come. Certificate of Incorporation for Delaware or the Articles of Incorporation in California [...]
Continue ReadingLiquidation Preference: Capping It
The liquidation preference can also have a cap if it is a participating liquidation preference: After preferred liquidation proceeds, preferred participates in liquidation proceeds on the common with a cap on participation at [ ]x. This is a participating liquidation preference but caps the total participation amount so that any amounts in excess of 2X or [...]
Continue ReadingLiquidation 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 not [...]
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 preference is [...]
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 ReadingPatent, Copyright, and Trademark – What’s The Difference?
Everyone has a great idea. Maybe you are a first time inventor who came up with an idea for a new and useful product, process or methodology. Maybe you are a seasoned business person, and you created a brand name. You have developed a successful market for your brand, and now you want to protect [...]
Continue ReadingAbout Sam Wu
Sam is a partner with Innovation Capital Law Group and specializes in startup representation, corporate finance (i.e. angel investment and venture capital financings), mergers and acquisitions and licensing transactions.
- 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
- Valuation Language: Calculating Per Share Price on a Fully-Diluted Basis
- Understanding the Valuation Language: Pre-money vs. Post-money
- Patent, Copyright, and Trademark – What’s The Difference?
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