2.2 KiB
2.2 KiB
Section 4 | Lesson 25 - Not Understanding Security Structures can Hurt You
Notes
Not understanding security structures is a death sentence Many great websites that can also help
common stock
- lowest of the low
- last claim on company
- can be sold to others
- if you invest in publicly trading company you'll get common
- employees usually get this
preferred shares
- better
-
liquidation preference
- in case of bankruptcy get paid first
- get dividends
-
conversion
- at the IPO preferred shares convert to common shares
- usually not allowed to sell them for a period of time (6 months)
rounds
down round
if you price yourself to high on a particular round, you will not be able to meet that value on the coming round, which means no one will invest in you again.
at that point you will get diluted
up round
if you price low, then your b series will be at a higher valuation
the venture capitalist that invested in the A round will be allowed to buy enough to give him the same number of shares.
Convertible debt
-
if the firm that gets the convertible note and can't pay the debt back, it can be converted back into stock for the investor
- company needs money between rounds
- they go to investor and say hey, gimme money as a loan
- if i can't pay back the loan, you get shares at a discount for the next round
- debt instrument and has senior debt claims over preferred shareholders3
- if firm can't pay the debt than the convertible debt holder can take the companies stuff
Warrants
- an option to get shares later for free if they invest early
Options
- call option: the right to BUY shares at a specified price in the future
- usually given to employees to incentivize them to stay in the company