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are term sheets binding

Are Term Sheets Binding?

Agreeing on a term sheet is the first step in the exciting process of raising money for startup founders. It sets out the parameters of the deal that will be executed in one or more legal documents to follow due diligence. But you may be wondering to yourself: “Are term sheets binding?” Unfortunately, the answer is that it depends. Read more

Important Terms in Convertible Notes

Important Terms in Convertible Notes and Convertible Equity

When negotiating a convertible note or a convertible equity instrument, there are a few key terms in the negotiation that are significant for the investor and the entrepreneur. In a previous article, we discussed the differences between convertible notes and convertible equity. This article discusses the important terms in convertible notes and convertible equity, including the cap and the discount.  Read more

typical startup structure

Typical Startup Structure

Startups often ask us how a typical startup is structured. While there are plenty of free and affordable resources for various forms, they don’t provide much guidance on what forms to use and why. In fact, there is no one-size-fits-all approach to structuring a startup. Each is unique in its needs. Still, there are some default positions that apply to the typical startup structure for a technology (or other) startup seeking venture capital.  Read more

convertible equity

Is Convertible Equity Better Than Convertible Note and Preferred Stock?

Convertible equity has gained popularity in Silicon Valley after Y Combinator made its Simple Agreement for Future Equity (or “SAFE”) available for free and used it for all of its startups. Since then, 500 Startups followed suit with its affectionately-named KISS document. The intent in creating the convertible equity was to provide a better tool–compared to the convertible note and preferred stock–to handle early-stage investments by angel investors.

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Debt vs Equity

Debt vs. Equity

When raising money as a business, whether old or new, it is important to carefully consider the best way to fundraise–i.e. whether it will take the form of debt or equity. In short, “debt” refers to loans, while “equity” refers to giving away a piece of ownership in the business. When deciding on debt vs. equity, or a combination of the two, entrepreneurs should take into account the advantages and disadvantages of each approach.

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California Securities Exemptions

Common California Securities Exemptions for Startups

When issuing “securities,” it is necessary to pay attention to state “blue sky” laws, in addition to federal securities laws. If you are relying on a federal exemption that does not preempt state laws, then you have to make sure that a state exemption applies to the debt or equity transaction as well. This article describes the common California securities exemptions that may apply to an early-stage startup. Read more

Incorporate in Delaware

Deciding to Incorporate in Delaware vs. California

The laws and requirements governing business entities are made primarily at the state level. Thus, each state may impose different requirements on businesses incorporated in that state. So why do businesses incorporate in Delaware vs. California and should you incorporate your social enterprise in Delaware or California? Read more

Choosing a Business Entity

Factors to Consider When Choosing a Business Entity

We are often asked “what is the best entity type?” There really is no one-size-fits-all answer because each entity may be more or less beneficial for any given enterprise. Rather, it is important for entrepreneurs to consider various factors when choosing a business entity. Read more

Benefits of Crowdfunding

The Many Benefits of Crowdfunding

Crowdfunding is a fantastic tool for generating early stage funds for all types of enterprises, including nonprofits, social enterprises, startups, and small businesses. There are many easy-to-use platforms and the legal requirements for launching a crowdfunding campaign are minimal (see this article on crowdfunding laws for nonprofits). But the benefits of crowdfunding go beyond simply raising funds. This article discusses several of the benefits of crowdfunding, including demonstrating proof of concept as a means to raise money from professional and institutional investors. Read more