In Part I of this two-part series, I explained how a favorable pre-money valuation can be undercut by a large option pool baked into the pre-money cap table. In this Part II of the series, I will concentrate on one other deal term that can serve to undermine a negotiated valuation: liquidation preferences. Failure to
Why Valuation is Overvalued, Part I: The Option Pool
In any seed or early stage round negotiation between a company and a VC, one of the first and most contentious issues to be negotiated is valuation. A company’s pre-money valuation will determine how much equity will need to be issued to the investor for any given amount of investment, and thus on its face
Accelerator Mentoring and Money: On-Ramp for Startup Success
Building a successful startup is challenging. But the chances of success could be greatly enhanced through participation in a startup accelerator program. Entrepreneurially minded universities and research institutions have run incubators on or near campus where startups receive office space, shared facilities and services, but no capital. Over the last several years, a new breed
To Improve Small Company Liquidity, SEC Chairman Announces Tick-Size Pilot
SEC Chairman Mary Jo White gave her state of the Commission speech on Friday at the “SEC Speaks 2014” conference in Washington, D.C. But if you were distracted for a moment by the sight of hoodie-clad Mark Cuban live-tweeting at the conference, you may have missed this one paragraph in the speech:
“In 2014
SBA Initiatives and Twisted Business at SBIA Northeast Private Equity Conference
My partner Steve Melore and I braved the latest New York snow storm to attend the Small Business Investor Alliance’s Northeast Private Equity Conference on January 22, of which Farrell Fritz was a sponsor. The SBIA is the leading professional organization for lower middle-market investment funds and the LPs that invest in them.
The
FINRA Priorities for 2014: IPOs, General Solicitation, Crowdfunding Portals and Microcap Fraud
On January 2, 2014, the Financial Industry Regulatory Authority (“FINRA”) published its annual priorities letter for 
2014, chief among which will be IPOs, general solicitation in private offerings, crowdfunding portals and microcap fraud.
IPOs
In the area of IPOs, FINRA intends to focus on “spinning,” a practice in which an underwriter allocates “hot” IPO shares
Close to the Vest: Founders’ Stock and Vesting
Your startup was launched only a few months ago and your co-founder has just informed you that he’s leaving. It hits you that your co-founder just walked out the door with 50% of the equity in the company. Oops.
Founder breakups are not uncommon, but what happens to the exiting founder’s stock will depend on
SEC Provides Guidance on General Solicitation Private Offerings
The Securities and Exchange Commission released helpful guidance on some of the practical aspects of the new Rule 506(c) exemption for private offerings using general solicitation and advertising. The guidance comes in the form of Questions 260.05 – 260.13 in its Questions and Answers of General Applicability and include the following:
- Exemption is available to
Wisdom of the Crowd: SEC Issues Proposed Rules on Equity Crowdfunding
In a massive 585 page release, the Securities Exchange Commission on October 23 issued its long overdue proposed rules on equity crowdfunding to implement the statutory equity crowdfunding exemption set forth in Title III of the JOBS Act. As proposed, Regulation Crowdfunding implements and further clarifies the statutory requirements for equity crowdfunding, and in
Cornell Entrepreneurship Summit 2013: “Cool Jar” Deposits and Frozen Custard
The second annual Cornell Entrepreneurship Summit was held on October 11 in New York City and I was thrilled to attend. This year, the Summit was sub-captioned “The Beginning: From Nothing to Something”, and featured presentations from mostly Cornell entrepreneur-alums, one VC-alum and a few reps from entrepreneurship@cornell, the campus-wide program that promotes