The only way to achieve a high enough return on investment in a startup (to compensate for very high risk of failure) is through equity investments or debt hybrid -. Equity investments
So, how is the equity investment made from a legal perspective? There are 5 different steps.
evaluation.
First, the estimated value of the firm for investment purposes must be uspostavljena.Članak I published in 2009, the value of Emerging Business for Equity Financing, offers a detailed method to value an early stage business (click here to see ).
This valuation methodology is focused on key elements of any start-up:. Gross margins and cash flow
Using this method, you'll have something defensible positions on how to save with pre-money valuation for your business and gauge whether your company can raise outside money. Of course, it is subject to final negotiations with investors.
In addition to detailed methods, there's a method (of course, best used for measuring the thumbs), indicating the first $ 1MM investment in early stage, before the company's revenue to buy 33% to 40% of the company.
If your number is on the detailed assessment process pursuant to rule out, there must be a "special factor" to show why your company is out of the ordinary. Usually this is because the company has cash flow and customers. But be careful about that too. This is just another reason for investors to drop their business.
If, on the other hand, your estimate is too low (and you have too much equity to raise capital you need), this means that the business model will not be able to support the outside investment. Maybe your gross margins are too low, can not achieve profitability, or you can not scale business.
capitalization table.
after the value is established, the capitalization table is sastavljen.Kapitalizacije table (or 'cap' table) shows the ownership interests in companies over time in the recording format, starting with the foundation and stepping through the various changes in the capital, shows the diluted effects of each subsequent issuance of the share capital of the company.
evaluation is used to calculate how much capital must be issued to raise the desired amount of capital and the purchase price per share (or other security). Kapa table creates a game plan for the ownership structure of the entity and any amount of money was raised.
Term Sheet.
Further, the terms sheet ready describing an investment based on the cap table. This step is optional, but may be good practice to avoid the cost of preparation of investment documents, and had no customers or to revise them, because they address the concept of change.
Shipping list is used during negotiations with potential investors and is intended to provide an indication of interest and comments on the proposed arrangement. Because of securities laws (state and federal) govern the offer and sale of securities, the requirements list is not actually offer. There is no obligation on both sides:. The Company may change jobs and a potential investor may subsequently decide not to invest
investment documents.
The job requirements are fairly well established, the legal documents to complete the investments have been prepared. These documents (as well as the supply and sale) must be in accordance with federal and state securities laws.
The first are those associated documents. If start-up was organized as a limited liability company, will usually be converted into a corporation. If a corporation, capital structure may have to revise and edit documents and corporate household updated or revised. Changes in capital structure may include increasing the number of authorized shares or the creation of the desired class of shares.
If necessary, the founder of the employment agreements, intellectual property assignments and transfers of property made to the company.
then offering documents were prepared. They include the stock purchase agreement, a private offering memorandum, the investor questionnaire (in accordance with securities laws) the shareholders agreement, if applicable, and the board a written approval for the sale.
Finally, the documentation submitted, including the SEC Form D, were prepared and submitted.
Of course, all of the above were prepared based on a review of documentation, business plan and communications with counsel.
offers and sales.
At the end of the coming offers and sales dionica.Osnivači (usually at no extra charge), to offer and sell shares to investors.
investors to sign documents and hand over checks for the purchase. For specific offers and is being held in escrow until the minimum amount of capital has risen. For other funds immediately available to the company.
when the sale is completed, the company issued stock certificate of investors, as well as copies of signed documents. Also, at least at the time of first sale, Form D filed electronically with the SEC.
Post sale.
Following the sale of shares, the founders of the company must act in accordance with the required corporate protocol, but can be used to achieve capital increases and the events of a business plan.
of raising capital through the sale of equity can be complicated and time consuming, but the only way to adequately compensate investors for the high risk associated with investing in early stage and start businesses.
Of course, though, so it must be accomplished in accordance with federal and state securities laws.
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