Guidance

This article is one in a series of articles explaining various terms commonly seen in venture capital equity financings, keyed to the commonly referenced National Venture Capital Association (NVCA) documents.

In a corporation, stockholders are typically not involved in the management of the business (unless otherwise negotiated). The corporation’s board of directors and executive officers bear that responsibility. As a result, stockholders may not have relevant information concerning the corporation’s activities.

What is a Liquidation Preference?

Imagine your venture-backed company is sold, or (yes, it can happen) goes bankrupt—in both scenarios, investors want to know: who will get paid, and in what order?

As a founder of a startup, you may consider an equity financing opportunity with a venture capital firm (a VC), but it is important to understand some of the regulatory frameworks that apply to VCs and how they might impact the structure of your financing.

When a founder, employee, or other service provider has shares or options subject to vesting, one common issue they may want to solve for is how unvested equity is treated at the time the Company is sold—single- and double-trigger-acceleration are two common approaches, although single-trigger tends to be more controversial.

As a startup founder, you’ve got a list a mile long of complex choices that you need to get right—finding the right co-founders and key team members, perfecting the pitch, and fine-tuning the MVP tend take the limelight—but one critical choice is picking the optimal type of business organization for your new venture.

This article is one in a series of articles explaining various terms commonly seen in term sheets issued by venture capital funds in connection with equity financings.

This article is one in a series of articles explaining various terms commonly seen in term sheets issued by venture capital funds in connection with equity financings.

Private company tender offers have become increasingly common due to the significant amount of available capital from venture capital/corporate venture capital, private equity, strategic and cross-over investors as well as headwinds in the IPO and broader public markets. With companies remaining private longer, early employees and investors often seek out opportunities to receive some cash proceeds before a total liquidity event in the form of a public offering or M&A sale transaction. Tender offers can be used to do just that.

Emerging companies formed outside the United States may want to redomicile their businesses to the United States to, among other things, enhance their fundraising prospects. U.S. venture capital investors often require non-U.S. companies to flip into Delaware corporations as a condition to investment. Given that custom and preference, non-U.S. startups may choose to redomicile to the United States in advance to well position themselves to receive U.S. venture capital quickly, eliminating potential setbacks or pre-conditions during the investment process itself.

If you’re reading this, chances are this is not the first time you’ve heard of the 83(b) election (and if it is, then definitely keep reading). The “83” in “83(b) election” refers to Section 83 of the Internal Revenue Code, and despite the relative simplicity of the concepts that this particular section deals with, the 83(b) election may be one of the most important tax filings you make while on your startup journey.

This article is one in a series of articles explaining various terms commonly seen in term sheets issued by venture capital funds. We give example language based on the commonly referenced National Venture Capital Association (NVCA) documents.

You’re an entrepreneur, you form your first company, and suddenly you carry the title of founder, director, officer, and/or employee all at once. When running your business, it may feel like all of your roles blur together. However, it’s important to remember your different roles when taking action on behalf of the corporation in order to protect yourself from liability.

A fiduciary is someone who is required to act for the benefit of another person on all matters within the scope of their relationship. Directors and officers of a corporation are fiduciaries. Under Delaware law, the general rule is that a director owes fiduciary duties of loyalty and care to the corporation and its stockholders.