Comments on: Equity is the currency of early stage businesses.

By: Dave Berkus

Dave Berkus — Tue, 26 Oct 2010 20:59:44 +0000

Rob, good questions. The 15% is fully diluted. If 85,000 shares issued and 15,000 options, then the options represent 15% AFTER dilution but 17.6% before the dilution from the options. New investors want the option pool created first, so they will see 100,000 shares and 15% before their investment. Founders occasionally get options, not for board service but because later investments dilute them so badly that the investors take pity on the founders and issue more options to keep them “interested” in their company.
-Dave

By: Rob Wiltse

Rob Wiltse — Mon, 25 Oct 2010 22:17:33 +0000

Love the topic. The guidelines based on the trickle down from the CEO level are extremely helpful. Do these guidelines assume a post money fully diluted cap table? Also, does the 15% pool incorporate founders serving as officers? I ask since most pre money start ups have a founder serving as the CEO and don’t have sufficient cash to sufficiently pay launch executives.

By: Tahir

Tahir — Mon, 17 May 2010 16:10:22 +0000

In California the securities filing fee will be at least $201 (California charges $200 + a percentage of the value of the securities offered) and more likely about $1,000.

I’m glad you note the need to consider Sec. 409A of the federal tax code (and California has its parallel). I’ve worked with clients over the past couple years to undertake the voluntary correction that’s possible when the 409A valuation is overlooked and the valuation is questionable. Happily, it’s not a difficult process if correction occurs within the first year without any complicating exercises.