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WE.WIKI

A collection of 20 posts

What is Share Dilution?

Share dilution is the decrease in ownership when additional shares/equity are issued as a result of a corporate transaction. Share dilution can also be called equity dilution and or stock dilution. Shares in private companies can have provisions of non-dilutive shares, where the equity owner will always keep the

Convertible Note vs. SAFE Note

There are multiple differences between Convertible Notes and SAFE Notes: 1. Debt Classification: Convertible Notes are debt, and SAFE Notes are not. Convertible Notes are loans that need to be repaid, either through cash or shares in the company. The goal is to be repaid in shares, in case the

A Guide to Shareholder Rights

Liquidation Preference Shareholder receives priority in being paid out in the case of a liquidity event Voting Rights Shareholder has the right to vote on company bylaws, board members, etc. Tag Along Rights Minority shareholders can sell their shares, or ‘tag along’, in the event a majority shareholders sells. Drag

Employee Equity Plans

A Guide to ESOP Terms

Vesting Period Vesting in the context of Employee Stock Ownership Plans (ESOPs) refers to the process by which an employee earns the right to receive ownership of shares in their employer's company. When an employer offers an ESOP, they typically grant employees the option to purchase company stock at a

Employee Equity Plans

What's a Vesting Schedule?

A vesting schedule is a plan that outlines the conditions under which an employee becomes entitled to receive certain benefits, such as stock options or company-matched contributions to a retirement plan. In the context of equity-based compensation, vesting schedules typically specify the length of time an employee must work for

Common vs. Preferred Stock

People invest in a company and they receive stock representing their equity ownership in the company. But not all stock is created equal! Companies can issue different share classes to attract different investors. Here are a few differences between preferred and common stock: Characteristics of Common Stock * Upside Potential for

What are Drag Along Rights?

A drag along right allows the majority shareholder of a company to force all other shareholders to accept a buy-out offer, often from a third party like a fund or larger corporation. All of the shareholders receive the same terms of the sale in order to “drag” them along in

What are Tag Along Rights?

Tag along rights are legal shareholder agreements that guarantee minority stakeholders the right to sell their shares in the company at the same time and under the same conditions as the majority stakeholder. Tag along rights could be part of a venture capital deal where there are few majority shareholders

If I Don’t Have Investors, How Do I Valuate my Company?

The common belief is that startups are viewed as successful based on their company valuation. But why do you need to value a private company? The short answer is that you do not need to value your company until required by a corporate transaction, including taking on investment, starting an

How do SAFE Notes Work?

A SAFE Note is a form of convertible security. Very similar to a convertible note, the investor pays cash today with the expectation that the cash turns into valuable stock later. The term SAFE is an acronym for Simple Agreement for Future Equity, which was created by Y Combinator 2013

How do Convertible Notes Work?

A convertible note is short-term debt that converts into equity. The basic mechanics of a convertible note include an investor loaning money to a startup, and instead of a return in the form of principal plus interest, the investor would receive equity in the company. Convertible notes are often used

Should I try Crowdfunding?

Crowdfunding is the process of raising small amounts of money from a large number of people, typically through online platforms. Advantages of Crowdfunding As a startup founder, crowdfunding can be a valuable alternative to traditional forms of funding, such as venture capital or angel investing. Here are some advantages of

Should I Fundraise with Private Equity?

Private equity investors pool their money together to buy and take control of an existing company that is typically more mature than a startup. The goal of private equity is to improve the company's performance, increase its value, and then sell it for a profit. Advantages of Fundraising via Private

Should I Fundraise with Angel Investors?

Angel investors are typically wealthy individuals who use their personal funds to invest in startups, usually in earlier stages of the company's growth. Not only are angel investors great resources for early-stage capital, they often provide mentorship and guidance to the founders. Advantages of Raising via Angel Investors As a

Should I Fundraise with Venture Capitalists?

Venture Capitalists are firms or investors who invest in early-stage startups with the potential for significant growth and returns. Venture capitalists typically invest in companies that have already shown some traction in their market and have the potential for exponential growth. Advantages of Fundraising through Venture Capital As a founder,

What is the FFF Round?

Short for "Friends, Family, and Fools", the FFF round is when a startup fundraises through their closest network (i.e. friends and family). Advantages of the FFF Round Engaging a close network and early investors is often the most-available option for early-stage founders, making the FFF round a common method

Employee Equity Plans

ESOP vs. SARs

An Employee Stock Ownership Plan (ESOP) is an employee participation plan in which employees can receive company stock as part of their benefits package. Stock Appreciation Rights (SARs) are a type of equity-based compensation that allows employees to share in the appreciation of a company's stock. SARs give employees the

What is Bootstrapping?

Bootstrapping is when the founders invest their own money into the company and grow without the support of external funds. Advantages of Bootstrapping Many startups find bootstrapping as the best path to growth, especially in the early days of the company. Here are a few advantages of bootstrapping: 1. Independence:

What are Common Fundraising Methods?

Here are some of the most common methods for fundraising as a startup: 1. Bootstrapping: Fund the business yourself. 2. Friends, Family, Fools (FFF): Fundraise through your closest network, your friends, and family. 3. Small Business Loans: There are countless banks that focus on small business loans. 4. Angel Investors,

Tips Shareholder Meetings

Shareholder meetings are a time for founders to not only report to their investors but to also align with them on a way forward. While these meetings can be a bit nerve-racking for new founders, they should be come less so if you utilize some best practices. Shareholder Meeting Best