Convertible Notes
The Convertible Note is a commonly used investment structure for funding startups. It's a short-term debt instrument that converts into equity later. If the issuer wants a debt instrument without conversion to equity, a promissory note would be a better option. With a Convertible Note, the investor receives accruing interest…
Equity
Equity is used for investment purposes to give the investor an ownership stake in the company. To calculate your ownership percentage you take the number of shares you are purchasing and divide it by the total number of outstanding shares. Another way to calculate your ownership is to use the…
SAFEs
SAFE stands for Simple Agreement for Future Equity. SAFE notes were created to provide a convertible note-like structure for startup funding but without interest rates or maturity dates. The SAFE note operates like a warrant which gives the investor the right to buy shares in a future-priced round. SAFEs are…
Direct Listings and IPOs
The traditional method of going public with an IPO is being challenged by a new model called a Direct Listing. The IPO is typically run by an investment bank which hypes the new offering to investors to create a market. This oversubscription creates artificial demand for the stock. After launching…
Should You Use an Investment Banker?
In raising funding or selling your business you may consider using an investment banker. Here are some key points to consider in making the decision: They can build out the dataroom and do the appropriate research of competitors and comps. An investment banker can create competition for your acquisition thus…
Negotiating the Exit
In negotiating the exit with an acquirer, you'll need to know the following: 1. Key metrics about your business, both those that show the company in a positive light as well as a negative one. 2. The total addressable market for your company. 3. The top three opportunities your company…
What if It Doesn’t Sell?
Most startups are launched with the idea of selling the business for a substantial gain in five to seven years. Many companies reach that stage and find they can't sell the business, at least not for the price they want. Here are some options: - Reduce your burn rate to…
Early Exits
In setting the exit, most investors look to maximize the exit value. It's important to remember that the metric investors use, IRR or Internal Rate of Return, has a time component to it. The faster the exit, the higher the IRR. As an investor, consider pursuing the highest IRR and…
Timeline for an Exit
Most exits come from another company buying the startup. It takes six months to a year to complete a buyout. Delays often come from the startup not being prepared or ready for the M&A process. Also, setting a valuation and final terms can take substantial time for research and negotiations.…
Finding the Buyer
In selling a business there are two types of buyers: strategic buyers and financial buyers. Strategic buyers look for companies that can enhance their current business. Financial buyers look for companies that generate cash. Their motivations and careabouts are different. The strategic buyer will look to see how closely the…
