Every time a U.S. company issues securities, it must do so in compliance with federal and state securities laws. If foreign investors are "accredited investors", then a U.S. company can issue them securities pursuant to Rule 506 (assuming all other

Properly drafted convertible notes should have provisions for the treatment of the note if a change of control happens while the convertible note remains outstanding. Some notes require payment of principal and interest in cash but may also include

The interest rate on convertible notes is decided considering the market (often in the range of 2%-12%) as well as the relative risk that the investor is taking on. It should always be greater than the applicable federal rate and smaller than the

Unless the person asking is wealthy and wants to give you the money for your business with no fear of losing it, the best thing that you can tell your family and friends who want to invest in your company is that you appreciate their support but are

Each of the following terms normally appears in a term sheet for a preferred stock financing: Amount Raised and Pre-Money Valuation; Liquidation Preference; Voting Rights; Protective Provisions; Anti-dilution Provisions;

There are many ways to meet venture capitalists that might be interested in investing in your company. A warm introduction is often going to lead to a deeper conversation. If you know founders of a VC's portfolio companies, you can ask them for an

A corporation is governed by its board of directors. State law and a company’s articles or certificate of incorporation give a company’s board broad authority to manage and direct its business and affairs. The board is not expected to engage in

Usually, convertible instruments will have either a valuation cap or a discount. Both enhance the potential conversion of the safe or note in favor of the investor. These provisions compensate the investor for taking the risk of putting money into

Divide the pre-money valuation of the company by the number of fully diluted pre-money shares. The number of fully diluted shares is the sum of (i) all outstanding common shares, (ii) all outstanding preferred shares, (iii) all outstanding options,

For emerging technology companies, gaining access to financial resources is a key challenge. Traditional bank loans are often unavailable, and the financial means of the founders are usually limited. An equity financing by institutional venture

Investors can exercise their S-3 (or F-3 for foreign issuers) registration rights to demand that a company that is already a publicly traded company register the investors’ shares with the Securities Exchange Commission. Form S-3 (or F-3 for

The first thing that a U.S. company needs to understand about issuing securities (e.g., selling stock, debt or SAFEs) is that the federal and state governments regulate the issuance of securities. The federal government, for instance, requires a

If the company grants to the holders of convertible notes the right to specific assets of the company in the event of default or non-repayment, then those investors have a security interest in those company assets and will be able to recover the

Registration rights are rights often held by certain preferred stock investors to force a private company to register with the Securities Exchange Commission and to provide a path to sell the investors’ shares on the public market. S-1 (or F-1 for

Title III of the JOBS Act (“Regulation CF”) allows companies to sell securities through crowdfunding platforms and allows for any individual (regardless of accreditation status) to invest in private companies through these platforms. If a company

Seed capital is the first outside capital that a company raises and can be vital to the success of a fledgling business. Capital is necessary for building a team, acquiring customers, and generally everything a startup needs to get off the

To prepare for a preferred stock financing, a company’s management will need to ensure that they can accurately present the company’s narrative, projections, results, and the team to investors. They must also ensure that all corporate contracts and

Many, but not all, startup founders use advisors to provide guidance in the early days of a company. Advisors can be very useful for two purposes: Advisors can help supplement the skills, knowledge and connections of the founder, and

There are five primary documents executed in connection with most U.S. preferred stock financings: Certificate/Articles of Incorporation (or “Charter”): The charter sets out the fundamental rights and privileges associated with each class and

Investors can exercise their "piggyback registration rights” to demand that a company includes their shares in a public sale of new shares initiated by the company. This means that the company must register the investors' shares along with the new