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Guides
Insights
Founder Preferred Stock: What Entrepreneurs Should Know
For startup founders, stock structure is more than a technicality - it’s a strategic decision that influences control, investor relations, and fundraising potential. Founders Preferred stock can take different forms, each carrying unique advantages and tradeoffs.
Determining Par Value for Startup Stock
Par value is one of the foundational decisions in a startup’s equity structure. While it may seem like a minor technicality, par value directly affects how stock is issued, how founders and employees receive equity, and how investors perceive the company.
Founder Equity: Strategic Considerations for Equitable Distribution
Splitting equity among co-founders is one of the most important and sensitive decisions in the early life of a startup. The distribution of ownership impacts motivation, team alignment, and the long-term health of the company. This guide outlines the key principles, methods, and pitfalls to consider when dividing founder equity.
Startup Shares: Determining the Right Number of Shares at Incorporation
For startup founders, determining the number of shares to issue at incorporation is a critical decision that impacts ownership structure, employee incentives, and future funding potential. This memo outlines the key factors to consider when allocating shares in your new venture.
FAQs
Open allHow can investor relations help with future fundraising?
Investors who feel informed and engaged are more likely to participate in follow-on rounds and make introductions to new investors.
What’s the difference between investor relations and board management?
Investor relations cover all investors, while board management focuses on directors who have governance authority. Both require structured communication.
How often should I send investor updates?
Monthly or quarterly is standard. The key is consistency and clarity.
How do terms like option pools and liquidation preferences affect valuation?
They don’t change the headline valuation but impact founder dilution and investor returns. This makes it critical to understand the full term sheet, not just the valuation number.
What role does traction play in valuation?
Traction is one of the strongest drivers. Revenue, user growth, and customer engagement make valuations more defensible.
Should founders always push for the highest valuation possible?
Not always. An inflated valuation can create problems in later rounds if you can’t meet growth expectations, leading to down rounds.
How do investors decide which valuation method to use?
It depends on your stage. Early-stage investors rely more on methods like Berkus and Scorecard, while later-stage investors lean on DCF and comps.
How do I follow up without being pushy?
Send a thank-you email, provide requested info, and share milestone updates. Respectful persistence is better than silence.
Should I hide risks from investors?
No. Experienced investors expect risks. Addressing them openly with mitigation strategies shows maturity and builds trust.
How long should an investor meeting last?
Most initial meetings run 30–45 minutes. Your pitch should take 10–15 minutes, leaving the rest for questions.
What materials do investors expect to see in the first meeting?
A pitch deck, a one-pager, and your cap table are usually enough. Financial models and product demos are useful for follow-ups.
How can founders avoid conflicts over decision-making?
By documenting approvals, following bylaws, and keeping communication open with both the board and shareholders. A decision matrix can help prevent disputes.
Can founders override the board?
No. The board of directors has ultimate authority over major corporate decisions. Founders who ignore board approval requirements risk invalidating decisions and breaching fiduciary duties. The best approach is collaboration and transparency with the board.
What are protective provisions?
Protective provisions are special rights negotiated by investors - usually preferred shareholders - that give them veto power over key corporate actions like mergers or issuing new stock.