Resources for insight and
inspiration
Guides
Insights
Types of Investors in Startups: Choosing the Right Financial Partners
Securing funding is one of the most important steps in building a startup. But capital is only part of the equation - different investor types bring distinct benefits such as mentorship, networks, and operational expertise. Understanding the funding landscape helps founders target the right partners at the right time.
Understanding the Funding Journey: A Guide to Startup Capital Rounds
We want to provide clarity on the progression of funding stages that successful startups typically navigate. While funding round terminology can vary across different entrepreneurial ecosystems, understanding the general framework will help you properly position your company for each capital-raising milestone.
Navigating Startup Funding: The Venture Capital Question
We want to share important considerations regarding funding options for emerging businesses, particularly focusing on venture capital as a potential path. Despite its prominent coverage in business media, venture capital may not be suitable for every entrepreneurial venture.
Unvested Shares Demystified: Understanding Equity Compensation in Startups
When a company grants stock, it doesn’t mean employees immediately own it outright. Instead, the equity is tied to a vesting schedule - a structured process that gradually transfers ownership over time. Unvested shares are those that an employee has been granted but are still subject to the company’s right to repurchase if the employee leaves early.
FAQs
Open allYou risk IRS penalties, employee tax liabilities, and potential challenges to the legitimacy of your equity compensation program.
Investor valuations reflect potential future value, while 409A valuations reflect the fair market value of common stock today.
At least once every 12 months, and sooner if there are major business or funding events.
It ensures your stock options are priced at fair market value, protecting employees and the company from IRS penalties.
Both create dilution, but investors often prefer structures that are clearly documented and aligned with the company’s stage. RSAs may be easier at incorporation, while RSUs are common once valuation increases.
It depends on company stage. RSAs can be advantageous early on, while RSUs may be more predictable in later-stage or pre-IPO companies with higher valuations.
No. Only RSAs (and certain stock options) are eligible for the 83(b) election. RSUs are taxed when delivered, typically at ordinary income rates.
RSAs are generally more effective for very early-stage startups with low valuations, since they allow employees and founders to lock in minimal tax liability through an 83(b) election.
The best approach is to consult with a tax advisor. They will assess your grant type, company valuation, and personal tax situation.
Not always. It only makes sense if the stock is likely to increase in value. If the company fails, you cannot recoup the taxes you paid upfront.
Yes, but only if you receive early-exercised options or restricted stock. Standard vested options are taxed differently.
You lose the ability to elect early taxation and will be taxed on the value of your equity as it vests, potentially resulting in higher taxes.
Yes. Investors prefer simplicity and transparency. Complex or founder-heavy structures may deter investment unless clearly justified and carefully limited.
Most states require corporations to specify a par value in their certificate of incorporation, though the exact rules vary.
It could make early equity grants more expensive and limit flexibility in future financings. That’s why startups typically choose a very low number.
To allow founders and employees to receive stock at minimal cost while leaving room for significant increases in value during future fundraising rounds.