Corporate Finance & Securities

VC Valuation Trends in Series Seed Financings

Pitchbook recently released its VC Valuations and Trends Report, which analyzes a decade of data on VC valuations, financings, and series terms. We’ve extracted some of the highlights from the data on series seed financings below:

Series Seed Valuations at Ten Year High

Valuations in series seed rounds have increased year over year, with the median valuation for seed stage financings reaching $5.9 million in the first half of 2014. This represents a 23% increase over the 2013 median of $4.8 million. As many folks are now saying, series seed financings are now the new Series A!

Investors Take Larger Percentage in Seed Stage

Investors in software startups have taken a larger stake in companies than in prior years. In 2011, the median percentage...

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Corporate Finance & Securities

How the Option Pool Impacts Valuation in Startup Financing

Many startups ask us about reserving an option “pool.” The “option pool” is a reserve of authorized but unissued shares of stock that the founders intend to use to compensate future key employees and investors. There is no size of option pool that is right for every company, although you’ve probably read that a “standard” option pool is generally somewhere between 10-20%. Many founders aren’t terribly concerned with the exact size of the option pool, although we think they should be. The size of the option pool has a considerable impact on the valuation of a startup when it raises capital from investors and ultimately the amount of dilution to founders’ shares.

Pre-money Valuation and Option Pools

As we’ve discussed in our...

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Business Startup

Delaware Says No Writing Necessary for Board Resignations

A recent Delaware court case discussed what type of action is necessary for directors to resign from a corporation’s board of directors. Ultimately, the court held that director resignations need not be in writing because Delaware Code Section 141(b) is a permissive statute.

 Summary of the Case

The CEO of Biolase, Inc, Federico Pignatelli, thought that Biolase’s board needed more experienced directors, and he asked some of the board members to resign so he could fill their positions with more seasoned directors. The board members resigned. But without Pignatelli’s knowledge, the directors he wished to replace had also aligned themselves with the new board members in order to try and replace Pignatelli as CEO. In an attempt to disrupt the new board...

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Business Startup

The 5 C’s of Business Lending

Nearly every business will at some point need to obtain financing to start or grow. While many startups and other businesses will look for investors to fund their business by means of equity investment, most businesses will take on debt either instead of or in addition to investment. The “5 C’s” of business lending are five key elements that describe what a borrower should have in order to obtain a loan with the best rates possible. Most lenders rely on the 5 C’s to make their lending decisions. Here is what your banker wants to know about you before they lend to you:

Character The owner’s business character will be based primarily upon the principal’s personal credit report. Banks rely on the...

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Business Startup

The Children’s Online Privacy Protection Act and Your Business

Are you about to launch a new app with youth appeal? Are you hoping that your new game will trend with tweens? Hold on—you might have to comply with the Children’s Online Privacy Protection Act (COPPA).

The government isn’t known for being on the cutting edge with technology, but the Federal Trade Commission seems to be well aware of apps such as Candy Crush and Snapchat. And it is continuously developing rules to regulate online services that collect data from users, especially children.

Just last year, revisions to the Children’s Online Privacy Protection Act took effect. The rule broadened its definition of personal information to include photos, audio recordings, geolocation, and persistent identifiers, including cookies that track activity online.

In this post, we’ll...

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Intellectual Property

Why Investors Require IP Assignments from Founders

One of the first requests that investors make before investing in a company is that the founders (and all key employees) execute written intellectual property assignment agreements. These agreements make it so any intellectual property that is created by the founder for the company will be owned by the company, not the founder individually. Generally, this request does not lead to much tension or pushback from the founders. Still, understanding the reason for IP assignments is important when negotiating your rights as a founder of the company.

Why Investors are Concerned About IP Assignments

The following hypothetical illustrates why investors are concerned with the company (as opposed to the founder) owning the IP associated with the company’s products or services.

Two founders, John...

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Business Startup

Why an LLC Taxed as an S Corporation is an Attractive Option for Businesses

As we’ve discussed in previous posts, the limited liability company (LLC) entity offers a ton of flexibility when organizing the management and economic structure of the company. Because of this flexibility, the LLC has quickly become the most popular entity to form when seeking limited liability protection for new businesses. Below we’ve highlighted one important consideration when forming your LLC: whether to elect to be an LLC taxed as an S corporation. 

Distinction between LLC and S Corporation

It is important to understand the distinction between an LLC and a S corporation. An LLC is a specific type of limited liability entity that is governed by state statutes and offers the owners (also known as “members”) limited liability protection when conducting business...

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Business Startup

What Your Business Should Know About the New $15/hour Seattle Minimum Wage

Earlier this month, the City of Seattle passed an ordinance that established a $15 minimum wage for employees working in Seattle. In this post, we’ll breakdown the details of the new local law, so you have a basic understanding of how it will affect your business. 

When does the new law take effect?

The ordinance will take effect on April 1, 2015.

How does it affect your Seattle business?

The ordinance provides generally that Seattle businesses must provide their workers with a minimum wage of $15 per hour. In terms of implementation, the ordinance treats certain employers differently, with “Schedule 1 Employer” and “Schedule 2 Employer” designations. Schedule 1 Employers are those who employ more than 500 employees. Schedule 2 Employers are those who...

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Corporate Finance & Securities

General Solicitation and Why 506(c) Matters to Your Startup

There has been a lot of buzz within the investment community about equity crowdfunding for both accredited investors under 506(c) and for non-accredited investors under Title III of the JOBs Act and recently enacted state law exemptions, including the crowdfunding bill recently passed (but not yet enacted) in Washington.

The main feature of both types of crowdfunding is the company’s ability to spread the news about the investment through the community, by advertisement and public broadcast.

Historically, or rather from the early 1930s until last year, you could not spread the news about such a “private placement” generally, as doing so by default made the offering “public,” triggering onerous securities regulations that can be incredibly expensive to comply with. Instead, investors learned...

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Business Startup

Washington State Passes Corporate Entity Conversion Bill

In an effort to streamline the process of converting one business entity to another business entity (e.g. converting your LLC into a corporation), Washington legislators recently passed Senate Bill 5999. Sponsored by Senators Pederson, O’Ban, Kline, and Rain, the bill amends Washington’s Limited Liability Company Act and the Business Corporation Act to allow conversions between Washington LLCs, corporations, and limited partnerships. The bill also allows entities formed in another state to convert into Washington LLCs and corporations.

The bill was signed into law by Governor Inslee on March 27, 2014, and will become law in early July 2014. The bill will be incorporated into the Revised Code of Washington, and the updated RCW should be available online as early as July...

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