Index

What’s on this site?

Below is a comprehensive list of posts.

INCORPORATION

1. What do you need to do before you quit your job to form a startup company?

2. When do I need to incorporate a company?

3. What type of entity should I form?

4. What state should I incorporate in?

5. What is a certificate of incorporation?

6. What are bylaws?

7. Why should a company follow corporate formalities?

8. What does the board of directors do?

9. What liabilities do the board or officers face?

10. What do stockholders need to approve?

11. How many shares should be authorized in the certificate of incorporation?

12. What does fully-diluted capitalization mean?

13. What is par value?

14. What is an agent for service of process?

15. How do you calculate Delaware franchise taxes?

16. What trademark and other legal issues are involved in selecting a company name?

17. What inspection and information rights does a stockholder have?

FOUNDERS ISSUES

1. Should founders pay for their stock in cash or contribute intellectual property?

2. Should founders stock be subject to vesting before a venture financing?

3. What should the vesting terms of founder stock be before a venture financing?

4. What is an 83(b) election?

5. What is qualified small business stock?

6.  Obama proposes no capital gains tax on qualified small business stock

7. What is Series FF stock?

8. What is Class F common stock?

9. What is TheFunded Founder Institute?

STOCK OPTIONS/COMPENSATION

1. What is Section 409A?

2. How do you set the exercise price of stock options to avoid Section 409A issues?

3. What’s the difference between an ISO and an NSO?

4. Should a company allow early exercise of stock options?

5. Should a company allow exercises of stock options with promissory notes?

6. How many shares should be reserved under a stock option plan?

7. How much should you pay an executive in a startup company?

GENERAL

1.  What is important in a confidentiality agreement or non-disclosure agreement (NDA)?

2.  What are securities laws?

3.  What is an accredited investor?

4.  Can a California company have unpaid interns?

5.  Is crowdfunding legal?

CONVERTIBLE NOTE BRIDGE FINANCINGS

1. Should a startup company raise its seed round using a convertible note or Series A Preferred Stock?

2. What does a convertible note bridge financing term sheet look like?

3. What should the interest rate for a convertible bridge note be?

4. What should the conversion discount be for a bridge note into preferred stock?

5.  What is a convertible bridge note with a price cap?

6. What type of financing forces an automatic conversion of the promissory note into Preferred Stock?

7. What happens to the convertible promissory note if the maturity date is reached and there hasn’t been a financing?

8. What happens if the Company is sold after the convertible bridge note is issued and before the maturity date or the next round of financing?

9. What should the maturity date of the convertible note be?

10. What should the terms of bridge loan warrant coverage be?

11. Can you have multiple closings in a convertible note bridge financing?

12. What does subordination mean in a convertible bridge note?

13. What is a security interest in connection with a convertible note?

14. What should the representation and warranties in the note purchase agreement be?

15. Why should a majority of investors be able to amend the convertible notes?

16. Who pays legal fees in a convertible note bridge financing and how much does it cost?

17. What is the economic difference between a conversion discount and warrant coverage for a convertible note?

18. What is the California Finance Lenders Law?

19. Is convertible debt with a price cap really the best financing structure?

20. What are the terms of Yuri Milner/SV Angel’s Start Fund $150K investment into Y Combinator companies?

21. What is convertible equity (or a convertible security)?

SERIES A FINANCINGS

1. What trends does WSGR see in venture financings?

2. What does a Series A term sheet look like?

3. What do definitive agreements for a Series A financing look like?

4. Are Series A term sheets binding?

5. What is preferred stock and why is it issued to investors?

6. How do you calculate Series A price per share?

7. Can you have multiple closings in a Series A financing?

8. What is a dividend preference?

9. What is a liquidation preference?

10. What is the amount of a typical liquidation preference?

11. What is the difference between non-participating preferred stock and participating preferred stock?

12. What is a cap on a participating preferred liquidation preference?

13. What is the priority of the liquidation preference when the Series B financing occurs?

14. Why do preferred stockholders have odd economic incentives upon a sale of company when they have non-participating preferred stock or particpating preferred stock with a cap?

15. What are redemption rights?

16. Why is preferred stock convertible into common stock?

17. When should preferred stock be automatically converted into common stock?

18. What is anti-dilution protection?

19. What is weighted average anti-dilution protection?

20. What is full ratchet anti-dilution protection?

21. What is a pay to play provision?

22. What are carveouts to anti-dilution protection?

23. What are protective provisions?

24. What stockholder approval is necessary to complete a venture financing?

25. What are information rights?

26. What are registration rights?

27. What are demand registration rights?

28. What are piggyback registration rights?

29. What are S-3 registration rights?

30. What is a market standoff or IPO lockup provision?

31. What is a right of first offer or right to maintain proportionate ownership in future financings?

32. What is a right of first refusal and co-sale agreement?

33. What is a drag-along or bring-along provision?

34. What should the composition of the board be like and how are the board seats allocated?

35. What are board observer rights?

36. What is a management rights letter?

37. What should legal fees for a Series A financing be?

38. What should the terms of the no shop be?

39. Why should a term sheet be confidential?

40. What are the conditions to closing of a Series A financing?

41. What does the legal opinion cover?

42. What is Form D and what information gets publicly disclosed to the SEC in a financing?

43. How do the sample Y Combinator Series AA financing documents differ from typical Series A financing documents (or what’s the difference between seed and venture financing terms)?

44. How do the sample Series Seed financing documents differ from typical Series A financing documents?

45. What is upgradeable Series A preferred stock?

46. How do you find federal and state government funding opportunities for clean tech and other companies?

SERIES B FINANCINGS

1. What does pari passu mean?

2. Should the Series B liquidation preference be senior to the Series A?

3. Should the Series B have a separate protective provision?

DOWN ROUNDS

1. What deal terms appear in down round and highly dilutive financings?

2. How can a board decrease litigation risk in an insider-led down round or dilutive financing?

3. If a down round financing is led by a new outside investor, does the board need to be concerned by the business judgment rule?

4. Should board members representing inside investors vote on the board resolutions authorizing the insider-led down round?

M&A

1. What stockholder approval is necessary to sell a company?

2. What are directors’ duties and what can they do to protect themselves in a sale of company?

3. What does a liquidation preference spreadsheet look like?

WSGR term sheet generator

WSGR online venture financing term sheet generator

[Below is the text of a WSGR email update.]

Always looking for ways to better serve the entrepreneurial community, Wilson Sonsini Goodrich & Rosati is pleased to announce the release of the WSGR Term Sheet Generator, a publicly available online tool that allows entrepreneurs and investors to generate an initial draft of a term sheet for a preferred stock financing. By answering a series of questions, users are guided through the principal variables contained in a venture financing term sheet. Brief explanations of the questions and typical deal terms are included. After answering as many questions as desired, users can generate, print, and save a Word version of the term sheet, which is intended to be useful in deal discussions between entrepreneurs and investors and in crafting a final, customized term sheet with the help of attorneys.

The term sheet generator is another example of the firm’s commitment to providing services to our clients more quickly and efficiently. Our attorneys use a more extensive version of the tool to generate initial drafts of documents for Series A preferred stock financings, including Certificates of Incorporation, Preferred Stock Purchase Agreements, Investor Rights Agreements, Right of First Refusal and Co-sale Agreements, Voting Agreements, corporate approvals, and closing documents. By using this tool, we believe that we are able to represent clients and complete transactions more efficiently. We also have a similar tool for generating initial drafts of more than 20 start-up company formation documents. In addition to document automation, Wilson Sonsini Goodrich & Rosati has developed other sophisticated knowledge management and related resources that enable our attorneys to better serve clients by tapping the essential expertise and experience of the entire firm.

Users with general comments regarding the WSGR Term Sheet Generator should contact partner Yoichiro (Yokum) Taku at ytaku@wsgr.com or Practice Resources Special Counsel Anthony Kikuta at akikuta@wsgr.com. To learn more about Wilson Sonsini Goodrich & Rosati’s entrepreneurial services, please click here.

[Update:  See below for various mentions of the term sheet generator.]

Altgate:  Law Firm Wilson Sonsini Now Preparing Term Sheets For Free (Furqan Nazeeri provides a review of the tool along with a sample term sheet that he created.)

Mendelson’s Musings: Wilson Sonsini Term Sheet Generator

Legal Blog Watch: Law Firm Replacing Itself With Free Term Sheet Generator

Guy Kawasaki:  Free Online Term Sheet Generator

WSJ Blogs: The Daily Startup: Putting Terms in Entrepreneurs’ Hands

ABA Journal: Wilson Sonsini Offers Free Document Assembly Tool

Adams Drafting:  The WSGR Term Sheet Generator: The Inoxerable Creep of Document Assembly

Prism Legal: New WSGR Term Sheet Generator – an Innovative Online Service

Law Shucks:  WSGR Term-Sheet Generator

Startup CFO:  Automatic Term Sheet Generator

The Startup Lawyer:  WSGR Launches Term Sheet Generator

VC Confidential: Term Sheet Tool

CenterNetworks:  Wilson Sonsini Launches Free Term Sheet Generator

Strategize:  Wilson Sonsini Term Sheet Generator

Sophisticated Finance:  Wilson Sonsini Term Sheet Generator

Kentucky Startup Blog: Term Sheet Generator

Steven Cox: Need a Venture Capital Term Sheet?  Here’s a FREE One

Legal Process Outsourcing:  Have Wilson Sonsini Read “The End of Lawyers?”

Barron’s:  For the Startup with No Money to Pay Pricey Lawyers:  Wilson Sonsini’s Do-It-Yourself Term Sheet Generator

Reuters:  Free financing tool to help startups get legal ball rolling

Reuters:  Hoopla over automated term sheet may be legit

WSJ Law Blogs:  Wilson’s Little Gift to the World

Xbusinessman:  WSGR term sheet generator (in Japanese)

The Lean Marketer: Online Term Sheet Generator for Venture Capital Funding

Incorporation

When do I need to incorporate a company?

[It’s been awhile since I wrote anything.  I am giving a presentation to some of the founders in TheFunded Founder Institute on incorporating their companies,... Read more »

July 20, 2009 | 19 Comments

What type of entity should I form?

C corps, LLCs, and S corps differ significantly in the areas of taxation, ownership, fundraising, governance and structure, and employee compensation.  Almost all... Read more »

March 12, 2009 | 23 Comments


Founders

Obama proposes no capital gains tax on qualified small business stock

This week, the Obama Administration released the first comprehensive summary of its budget proposal. The budget proposal is wide ranging, and includes, for example,... Read more »

May 13, 2009 | 13 Comments

What is TheFunded Founder Institute?

Adeo Ressi, the founding member of TheFunded, recently announced the establishment of TheFunded Founder Institute. The Founder Institute helps founders launch innovative... Read more »

May 4, 2009 | 8 Comments


Stock Options

How much should you pay an executive in a startup company?

CompStudy publishes an annual report of equity and cash compensation that provides compensation data on top management positions and Boards of Directors at private... Read more »

May 1, 2009 | 7 Comments

Should a company allow option exercises with promissory notes?

I typically discourage companies from allowing option exercises by means of a promissory note. Promissory notes can provide employees a means of exercising options... Read more »

January 18, 2009 | 3 Comments


General

Is crowdfunding legal?

Below is an article that I wrote for Business Law Today, a publication for the American Bar Association’s Business Law Section. Crowdfunding: Its Practical... Read more »

May 26, 2012 | Leave a Comment

Can a California company have unpaid interns?

(The following is from a WSGR client alert.) On April 7, 2010, the California Division of Labor Standards Enforcement (DLSE) issued an opinion letter addressing... Read more »

April 15, 2010 | 10 Comments


Convertible Note

What is convertible equity (or a convertible security)?

Quick answer: convertible equity (or a convertible security) is convertible debt without the repayment feature at maturity or interest. Background Over the past... Read more »

August 31, 2012 | 14 Comments

What are the terms of Yuri Milner/SV Angel’s Start Fund $150K investment into Y Combinator companies?

On January 28, 2011, Yuri Milner and SV Angel announced that their Start Fund would offer all Y Combinator companies $150K in convertible debt.  Reactions are mixed,... Read more »

January 31, 2011 | 9 Comments


Series A

How do the sample Series Seed financing documents differ from typical Series A financing documents?

After the recent announcement of the Series Seed Financing documents by Marc Andreesen, Brad Feld points out that there are now four sets of “open source”... Read more »

March 14, 2010 | 13 Comments

How do you find federal and state government funding opportunities for clean tech and other companies?

[I know it's been a long time since I posted anything, but I was recently accused of having a dead or dying blog and felt compelled to post something.] Wilson Sonsini... Read more »

December 22, 2009 | Leave a Comment


Down Rounds

Should board members representing inside investors vote on the board resolutions authorizing the insider-led down round?

As a theoretical matter, entrusting disinterested directors to approve a down round or dilutive financing is an excellent way to protect the insider-affiliated directors... Read more »

December 27, 2008 | Leave a Comment

If a down round financing is led by a new outside investor, does the board need to be concerned about the business judgment rule?

Having a new lead outside investor substantially improves the legal risk in a down round financing.  In most cases, the outside investor acting as lead will agree... Read more »

December 13, 2008 | Leave a Comment


M&A

What is an employee retention or M&A carveout plan?

I was speaking at an event last month to a group of CEOs and was surprised by the number of CEOs that were worried about the value of their common stock in a M&A... Read more »

February 21, 2010 | Leave a Comment

What does a liquidation preference spreadsheet look like?

I’ve had some comments and emails asking if I would publish a liquidation preference spreadsheet.  Basically, when a company is thinking about an M&A... Read more »

November 17, 2008 | 25 Comments