Startup Equity Primer for Employees

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  • Hi Jamie, thx for sharing the presentation. The downloaded file type is not working due to a (.key) format. If its not much trouble, could you email the ppt to raghurajr@yahoo.com for my entrepreneurship class project? Or could you fix the file extension to .ppt and reload? Thx.
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  • \n
  • Key things to keep in mind. This presentation is probably most relevant to: \n- Very early stage company: somewhere between founding and raising seed or Series A funding (It’s okay if you don’t know these terms. We’ll be going over them) \n\nSomeone looking to join an early stage startup as employee \n\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
  • What does it mean to have equity in a company?\n \nIt means you are a part owner in a company. \n \nIf your company is successful and is sold or taken public, you share in the gains. \n \nThat’s what happened to 1,000 employees of Apple when the company went public in 1980. More than 40 employees became millionaires because of their stock options. Steve Jobs, holding 7.5 million shares, was worth about $217 million dollars. \n \nBut let’s put things into perspective. In the very beginning, in 1976 Steve Jobs had to convince Steve Wozniak to quit Hewlett Packard to co-found Apple and work out of a garage. \n \nJoining a startup is still a risky business. \n \nAs they say in finance, startup equity has high risk, high return profile. \n \nWhat does ownership mean to you?\n\nFYI Stock certificates are becoming obsolete in the US, as they are no longer required from companies and are being replaced by electronic registration. \n
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  • There is class inequity \n
  • There is class inequity \n
  • There is class inequity \n
  • There is class inequity \n
  • There is class inequity \n
  • There is class inequity \n
  • “Rule of thumb” \nMay or may not apply to your company, your industry, your region because of different situations, term sheets, lawyers, and accountants \nAll employees are issued \n
  • “Rule of thumb” \nMay or may not apply to your company, your industry, your region because of different situations, term sheets, lawyers, and accountants \nAll employees are issued \n
  • “Rule of thumb” \nMay or may not apply to your company, your industry, your region because of different situations, term sheets, lawyers, and accountants \nAll employees are issued \n
  • “Rule of thumb” \nMay or may not apply to your company, your industry, your region because of different situations, term sheets, lawyers, and accountants \nAll employees are issued \n
  • “Rule of thumb” \nMay or may not apply to your company, your industry, your region because of different situations, term sheets, lawyers, and accountants \nAll employees are issued \n
  • “Rule of thumb” \nMay or may not apply to your company, your industry, your region because of different situations, term sheets, lawyers, and accountants \nAll employees are issued \n
  • “Rule of thumb” \nMay or may not apply to your company, your industry, your region because of different situations, term sheets, lawyers, and accountants \nAll employees are issued \n
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  • 409 Valuation explanation \nConsult a startup lawyer or ask Liberty\n\nSplit into stock and restricted stock\n\nEmployees are incentivized to increase the value of company \n
  • 409 Valuation explanation \nConsult a startup lawyer or ask Liberty\n\nSplit into stock and restricted stock\n\nEmployees are incentivized to increase the value of company \n
  • 409 Valuation explanation \nConsult a startup lawyer or ask Liberty\n\nSplit into stock and restricted stock\n\nEmployees are incentivized to increase the value of company \n
  • 409 Valuation explanation \nConsult a startup lawyer or ask Liberty\n\nSplit into stock and restricted stock\n\nEmployees are incentivized to increase the value of company \n
  • Securities – bond, equity, \n
  • Securities – bond, equity, \n
  • Securities – bond, equity, \n
  • Ask if you can make 83b election if you get restricted stock\n
  • Ask if you can make 83b election if you get restricted stock\n
  • Ask if you can make 83b election if you get restricted stock\n
  • Ask if you can make 83b election if you get restricted stock\n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • Dilution applies to both corporations and llc’s. \nPaul Graham: If n is the fraction of company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
  • The idea is to prevent a "hit and run" situation. \nAfter 1 year cliff, it’s common for ownership of stock/options/units to vest monthly or quarterly. \n
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  • valuation is what people think your company is worth \nliquidity event is when investors and employees can cash out, when company is sold or taken public\n
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  • Startup Equity Primer for Employees

    1. 1. Startup Equity 101 Primer r tners, LLC ippi ng Point Pa Text ger, T ana perations Mby Jamie Lee, O @wimlink @gitweets #Equity101
    2. 2. Disclaimer
    3. 3. DisclaimerI’m not an accountant or a lawyer. Theinformation contained herein and ensuingdiscussion should NOT be considered tax or legaladvice. The information is intended to help youget familiarized with general concepts in startupfinance, which may or may not apply to youremployment situation.Thank you!Jamie Lee @jieunjamie
    4. 4. Cliff’s Notes version
    5. 5. Cliff’s Notes versionGOOD TO KNOW
    6. 6. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompany
    7. 7. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompany
    8. 8. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompanyGOTTA KNOW
    9. 9. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompanyGOTTA KNOW•vesting schedule, or how your equity is accrued toyou over time
    10. 10. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompanyGOTTA KNOW•vesting schedule, or how your equity is accrued toyou over time•tax implications of owning, buying, and sellingequity
    11. 11. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompanyGOTTA KNOW•vesting schedule, or how your equity is accrued toyou over time•tax implications of owning, buying, and sellingequity•company valuation at liquidity event
    12. 12. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompanyGOTTA KNOW•vesting schedule, or how your equity is accrued toyou over time•tax implications of owning, buying, and sellingequity•company valuation at liquidity event
    13. 13. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompanyGOTTA KNOW•vesting schedule, or how your equity is accrued toyou over time•tax implications of owning, buying, and sellingequity•company valuation at liquidity event
    14. 14. 1. Equity = Ownership in company
    15. 15. 1. Equity = Ownership in company
    16. 16. 1. Equity = Ownership in company Apple went public in Dec 1980.
    17. 17. 1. Equity = Ownership in company Apple went public in Dec 1980. IPO offer price = $14
    18. 18. 1. Equity = Ownership in company Apple went public in Dec 1980. IPO offer price = $14 COB price = $29
    19. 19. 1. Equity = Ownership in company Apple went public in Dec 1980. IPO offer price = $14 COB price = $29 Split-adjusted IPO price = $2.75
    20. 20. 1. Equity = Ownership in company Apple went public in Dec 1980. IPO offer price = $14 COB price = $29 Split-adjusted IPO price = $2.75 Current price = $571
    21. 21. 1. Equity = Ownership in company Apple went public in Dec 1980. IPO offer price = $14 COB price = $29 Split-adjusted IPO price = $2.75 Current price = $571 Startup equity is
    22. 22. 1. Equity = Ownership in company Apple went public in Dec 1980. IPO offer price = $14 COB price = $29 Split-adjusted IPO price = $2.75 Current price = $571 Startup equity is high risk = high return
    23. 23. 2. High risk can also mean no return
    24. 24. 2. High risk can also mean no return
    25. 25. 2. High risk can also mean no return
    26. 26. 2. High risk can also mean no return
    27. 27. 2. High risk can also mean no return Very few startups become as successful as Apple. Most will fail.
    28. 28. 2. High risk can also mean no return Very few startups become as successful as Apple. Most will fail. Investing in a startup or
    29. 29. 2. High risk can also mean no return Very few startups become as successful as Apple. Most will fail. Investing in a startup or owning equity in a startup has
    30. 30. 2. High risk can also mean no return Very few startups become as successful as Apple. Most will fail. Investing in a startup or owning equity in a startup has tax and regulatory ramifications.
    31. 31. 3. Common vs. Preferred Stock
    32. 32. 3. Common vs. Preferred Stock
    33. 33. 3. Common vs. Preferred StockHolders Employees InvestorsPrice Usually lower than price of Usually higher than common preferredRights at Has claim to companys assets and "Preference" to get paid before commonacquisition earnings, but gets paid AFTER holders. Preference amount is generallyor preferred holders, IF money is left greater than the amount invested.liquidation over, per cap table.Rights at Equal footing as preferred Preference goes awayIPOPrivileges Common stockholder of Varies widely: can include board seat, Corporation may attend annual information rights, right to participate in stockholder meeting. future rounds of funding, right of first refusal, anti-dilution right, etc
    34. 34. 3. Common vs. Preferred StockHolders Employees InvestorsPrice Usually lower than price of Usually higher than common preferredRights at Has claim to companys assets and "Preference" to get paid before commonacquisition earnings, but gets paid AFTER holders. Preference amount is generallyor preferred holders, IF money is left greater than the amount invested.liquidation over, per cap table.Rights at Equal footing as preferred Preference goes awayIPOPrivileges Common stockholder of Varies widely: can include board seat, Corporation may attend annual information rights, right to participate in stockholder meeting. future rounds of funding, right of first refusal, anti-dilution right, etc
    35. 35. 3. Common vs. Preferred StockHolders Employees InvestorsPrice Usually lower than price of Usually higher than common preferredRights at Has claim to companys assets and "Preference" to get paid before commonacquisition earnings, but gets paid AFTER holders. Preference amount is generallyor preferred holders, IF money is left greater than the amount invested.liquidation over, per cap table.Rights at Equal footing as preferred Preference goes awayIPOPrivileges Common stockholder of Varies widely: can include board seat, Corporation may attend annual information rights, right to participate in stockholder meeting. future rounds of funding, right of first refusal, anti-dilution right, etc
    36. 36. 3. Common vs. Preferred StockHolders Employees InvestorsPrice Usually lower than price of Usually higher than common preferredRights at Has claim to companys assets and "Preference" to get paid before commonacquisition earnings, but gets paid AFTER holders. Preference amount is generallyor preferred holders, IF money is left greater than the amount invested.liquidation over, per cap table.Rights at Equal footing as preferred Preference goes awayIPOPrivileges Common stockholder of Varies widely: can include board seat, Corporation may attend annual information rights, right to participate in stockholder meeting. future rounds of funding, right of first refusal, anti-dilution right, etc
    37. 37. 3. Common vs. Preferred StockHolders Employees InvestorsPrice Usually lower than price of Usually higher than common preferredRights at Has claim to companys assets and "Preference" to get paid before commonacquisition earnings, but gets paid AFTER holders. Preference amount is generallyor preferred holders, IF money is left greater than the amount invested.liquidation over, per cap table.Rights at Equal footing as preferred Preference goes awayIPOPrivileges Common stockholder of Varies widely: can include board seat, Corporation may attend annual information rights, right to participate in stockholder meeting. future rounds of funding, right of first refusal, anti-dilution right, etc
    38. 38. 4. Employee stock ownership
    39. 39. 4. Employee stock ownershipTypically, total non-founder employee equity pool tends to be between 10% - 20%.
    40. 40. 4. Employee stock ownershipTypically, total non-founder employee equity pool tends to be between 10% - 20%.
    41. 41. 4. Employee stock ownershipTypically, total non-founder employee equity pool tends to be between 10% - 20%. Title Of total outstanding shares CEO 5-10% C-level Executives 1-3% VP, Directors 0.5-2% Managers .25-1%
    42. 42. 4. Employee stock ownershipTypically, total non-founder employee equity pool tends to be between 10% - 20%. Title Of total outstanding shares CEO 5-10% C-level Executives 1-3% VP, Directors 0.5-2% Managers .25-1%
    43. 43. 4. Employee stock ownershipTypically, total non-founder employee equity pool tends to be between 10% - 20%. Title Of total outstanding shares CEO 5-10% C-level Executives 1-3% VP, Directors 0.5-2% Managers .25-1%
    44. 44. 4. Employee stock ownershipTypically, total non-founder employee equity pool tends to be between 10% - 20%. Title Of total outstanding shares CEO 5-10% C-level Executives 1-3% VP, Directors 0.5-2% Managers .25-1%
    45. 45. 4. Employee stock ownershipTypically, total non-founder employee equity pool tends to be between 10% - 20%. Title Of total outstanding shares CEO 5-10% C-level Executives 1-3% VP, Directors 0.5-2% Managers .25-1%
    46. 46. 5. Types of Employee Stock
    47. 47. 5. Types of Employee StockPurpose: To attract and retain talented employees
    48. 48. 5. Types of Employee StockPurpose: To attract and retain talented employees
    49. 49. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members
    50. 50. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members Special vesting schedule may apply
    51. 51. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members Special vesting schedule may apply
    52. 52. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members Special vesting schedule may apply2. Restricted stock: employees at early stage company
    53. 53. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members Special vesting schedule may apply2. Restricted stock: employees at early stage company Granted while value of stock is relatively low
    54. 54. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members Special vesting schedule may apply2. Restricted stock: employees at early stage company Granted while value of stock is relatively low
    55. 55. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members Special vesting schedule may apply2. Restricted stock: employees at early stage company Granted while value of stock is relatively low3. Options: most common form of employee equity
    56. 56. 5. Types of Employee StockPurpose: To attract and retain talented employees1. Founder stock: founders & founding team members Special vesting schedule may apply2. Restricted stock: employees at early stage company Granted while value of stock is relatively low3. Options: most common form of employee equity ESOP: Employee Stock Option Plan
    57. 57. 6. Stock Options
    58. 58. 6. Stock Options
    59. 59. 6. Stock OptionsWhat you get When you have stock options, you dont own stock. You own the right to buy stock at an agreed-upon price, or strike price. You exercise your option when you buy stock.Nitty Gritty The board of directors sets the strike price based on fair market value(FMV) of common stock. ”At the money” options mean that FMV is equal to strike price.Legal & Tax Fine Once you exercise your option, you are immediately liablePrint for tax on the gain, or difference between FMV and strike(Consult your lawyer price, as ordinary income. Capital gain from stock heldand accountant!) longer than one year is taxable as long term capital gains.
    60. 60. 6. Stock OptionsWhat you get When you have stock options, you dont own stock. You own the right to buy stock at an agreed-upon price, or strike price. You exercise your option when you buy stock.Nitty Gritty The board of directors sets the strike price based on fair market value(FMV) of common stock. ”At the money” options mean that FMV is equal to strike price.Legal & Tax Fine Once you exercise your option, you are immediately liablePrint for tax on the gain, or difference between FMV and strike(Consult your lawyer price, as ordinary income. Capital gain from stock heldand accountant!) longer than one year is taxable as long term capital gains.
    61. 61. 6. Stock OptionsWhat you get When you have stock options, you dont own stock. You own the right to buy stock at an agreed-upon price, or strike price. You exercise your option when you buy stock.Nitty Gritty The board of directors sets the strike price based on fair market value(FMV) of common stock. ”At the money” options mean that FMV is equal to strike price.Legal & Tax Fine Once you exercise your option, you are immediately liablePrint for tax on the gain, or difference between FMV and strike(Consult your lawyer price, as ordinary income. Capital gain from stock heldand accountant!) longer than one year is taxable as long term capital gains.
    62. 62. 7. Capital Gains Tax
    63. 63. 7. Capital Gains Tax•Ordinary income tax can be as high as 35%.
    64. 64. 7. Capital Gains Tax•Ordinary income tax can be as high as 35%.• Short term CGT applies to securities held for lessthan one year and is the same as Ordinary IncomeTax.
    65. 65. 7. Capital Gains Tax•Ordinary income tax can be as high as 35%.• Short term CGT applies to securities held for lessthan one year and is the same as Ordinary IncomeTax.• Long term CGT applies to securities held morethan a year and is capped at 15%.
    66. 66. 8. Restricted Stock
    67. 67. 8. Restricted Stock
    68. 68. 8. Restricted StockWhat you get Restricted stock is a stock granted as a form of compensation with restrictions.Nitty Gritty Often the restriction is continued employment during a set period of time, upon which the shares vest. Or the restriction can be performance-based.Legal & Tax Fine Under 83(b) IRS code, you can recognize "income" uponPrint granting of stock. Income is difference between FMV and(Consult your stock price, which are typically the same. Meaning nolawyer and income is recognized.accountant!)
    69. 69. 8. Restricted StockWhat you get Restricted stock is a stock granted as a form of compensation with restrictions.Nitty Gritty Often the restriction is continued employment during a set period of time, upon which the shares vest. Or the restriction can be performance-based.Legal & Tax Fine Under 83(b) IRS code, you can recognize "income" uponPrint granting of stock. Income is difference between FMV and(Consult your stock price, which are typically the same. Meaning nolawyer and income is recognized.accountant!)
    70. 70. 8. Restricted StockWhat you get Restricted stock is a stock granted as a form of compensation with restrictions.Nitty Gritty Often the restriction is continued employment during a set period of time, upon which the shares vest. Or the restriction can be performance-based.Legal & Tax Fine Under 83(b) IRS code, you can recognize "income" uponPrint granting of stock. Income is difference between FMV and(Consult your stock price, which are typically the same. Meaning nolawyer and income is recognized.accountant!)
    71. 71. 10. Dilution (part of life) Images not drawn to scale
    72. 72. 10. Dilution (part of life)Each new issuance of stocks results in dilution of existing shareholders. Images not drawn to scale
    73. 73. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders.Pre-dilution Images not drawn to scale
    74. 74. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders.Pre-dilution Images not drawn to scale
    75. 75. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership
    76. 76. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 shares
    77. 77. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 sharesTotal sharesoutstanding:
    78. 78. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 sharesTotal sharesoutstanding:10M shares, $1/share
    79. 79. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 sharesTotal sharesoutstanding:10M shares, $1/share$100,000
    80. 80. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 sharesTotal sharesoutstanding:10M shares, $1/share$100,000Slice of a small pie
    81. 81. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 sharesTotal sharesoutstanding:10M shares, $1/share$100,000Slice of a small pie
    82. 82. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A fundingTotal sharesoutstanding:10M shares, $1/share$100,000Slice of a small pie
    83. 83. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A fundingTotal shares 2M shares issuedoutstanding:10M shares, $1/share$100,000Slice of a small pie
    84. 84. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A fundingTotal shares 2M shares issuedoutstanding: at $3/share10M shares, $1/share$100,000Slice of a small pie
    85. 85. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A fundingTotal shares 2M shares issuedoutstanding: at $3/share10M shares, $1/share$100,000 Total $ raised:Slice of a small pie
    86. 86. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A fundingTotal shares 2M shares issuedoutstanding: at $3/share10M shares, $1/share$100,000 Total $ raised:Slice of a small pie $6M
    87. 87. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A fundingTotal shares 2M shares issuedoutstanding: at $3/share10M shares, $1/share$100,000 Total $ raised:Slice of a small pie $6M
    88. 88. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A fundingTotal shares 2M shares issuedoutstanding: at $3/share10M shares, $1/share$100,000 Total $ raised:Slice of a small pie $6M
    89. 89. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A funding .8333% ownershipTotal shares 2M shares issuedoutstanding: at $3/share10M shares, $1/share$100,000 Total $ raised:Slice of a small pie $6M
    90. 90. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A funding .8333% ownershipTotal shares 2M shares issued 100,000 sharesoutstanding: at $3/share10M shares, $1/share$100,000 Total $ raised:Slice of a small pie $6M
    91. 91. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A funding .8333% ownershipTotal shares 2M shares issued 100,000 sharesoutstanding: at $3/share Total shares10M shares, $1/share outstanding:$100,000 Total $ raised:Slice of a small pie $6M
    92. 92. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A funding .8333% ownershipTotal shares 2M shares issued 100,000 sharesoutstanding: at $3/share Total shares10M shares, $1/share outstanding:$100,000 Total $ raised: 12M shares, $3/shareSlice of a small pie $6M
    93. 93. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A funding .8333% ownershipTotal shares 2M shares issued 100,000 sharesoutstanding: at $3/share Total shares10M shares, $1/share outstanding:$100,000 Total $ raised: 12M shares, $3/shareSlice of a small pie $6M $300,000
    94. 94. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale1% ownership100,000 shares Series A funding .8333% ownershipTotal shares 2M shares issued 100,000 sharesoutstanding: at $3/share Total shares10M shares, $1/share outstanding:$100,000 Total $ raised: 12M shares, $3/shareSlice of a small pie $6M $300,000 Skinnier slice of a bigger pie
    95. 95. 10. Dilution (part of life) Each new issuance of stocks results in dilution of existing shareholders. Post-dilution Pre-dilution Images not drawn to scale Dilution is an INEVITABLE outcome of company growth.1% ownership100,000 shares Series A funding .8333% ownershipTotal shares 2M shares issued 100,000 sharesoutstanding: at $3/share Total shares10M shares, $1/share outstanding:$100,000 Total $ raised: 12M shares, $3/shareSlice of a small pie $6M $300,000 Skinnier slice of a bigger pie
    96. 96. 12. Vesting for long-term value creation
    97. 97. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common.
    98. 98. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common.
    99. 99. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire
    100. 100. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 0%
    101. 101. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 0%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    102. 102. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 0%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    103. 103. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 0%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    104. 104. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 0% 25%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    105. 105. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 0% 25%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    106. 106. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 0% 25%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    107. 107. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 0% 25% 50%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    108. 108. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 0% 25% 50%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    109. 109. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 0% 25% 50%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    110. 110. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 0% 25% 50% 75%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    111. 111. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 0% 25% 50% 75%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    112. 112. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 4th year 0% 25% 50% 75%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    113. 113. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 4th year 0% 25% 50% 75% 100%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    114. 114. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 4th year 0% 25% 50% 75% 100%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    115. 115. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 4th year 0% 25% 50% 75% 100%1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    116. 116. 12. Vesting for long-term value creationVesting means that ownership of options or stocks accrue to you over a fixed period of time. 4 year vesting with 1 year cliff is common. day 1 of hire 1st anniversary 2nd year 3rd year 4th year 0% 25% 50% 75% 100% Oops1 year cliff means you dont vest anything duringthe 1st year. If you leave during this period, youleave with no equity or options. Unvested optionsand grants maybe repurchased by the companyand returned to employee pool.
    117. 117. Example ScenarioRestricted Stock Grants100,000 shares with 4 year vest, 1 year cliff
    118. 118. Example Scenario Restricted Stock Grants 100,000 shares with 4 year vest, 1 year cliffEnd of... Company Total Shares YOUR Value of Your Equity Event Notes Valuation Vested YOUR Ownership Shares sharesYear 1 $10MM 10MM 25K $25K .25% 25% vested $1/shareSeries A $36MM 12MM 25K $75K .21% 2M Series A Preferred Your ownership isFunding Stocks are issued at diluted from .25% $3/share, $12MM to .21%. $3/share preferenceYear 2 $36MM 12MM 50K $150K .42% 50% vested $3/shareAcquisition $48MM 12MM 50K $180K .42% Series A Investors Liquidation can have $12MM trigger accelerated preference. vesting of ALL 100K $3.6/share shares (variable)
    119. 119. Cliff’s Notes versionGOOD TO KNOW•your percentage of ownership = shares you owndivided by total number of shares issued bycompanyGOTTA KNOW•vesting schedule, or how your equity is accrued toyou over time•tax implications of owning, buying, and sellingequity•company valuation at liquidity event
    120. 120. Recap - What can you do?Knowledge is Power
    121. 121. Recap - What can you do?Knowledge is Power 1.Ask how much money company has raised in how many rounds of funding.
    122. 122. Recap - What can you do?Knowledge is Power 1.Ask how much money company has raised in how many rounds of funding. 2.Consider the whole package.
    123. 123. Recap - What can you do?Knowledge is Power 1.Ask how much money company has raised in how many rounds of funding. 2.Consider the whole package. 3. Know when to buy and sell.
    124. 124. Recap - What can you do?Knowledge is Power 1.Ask how much money company has raised in how many rounds of funding. 2.Consider the whole package. 3. Know when to buy and sell. 4. Be in the know, stay in touch with news.
    125. 125. Good reads & Sources- Ackwire, Completly Anonymous Startup Salaries: http://www.ackwire.com/- Andy Payne, Startup Equity for Employees: http://www.payne.org/index.php/Startup_Equity_For_Employees- Apple Investor Relations, FAQ: http://investor.apple.com/faq.cfm- Brad Feld, Blog archive on Term Sheets:http://www.feld.com/wp/archives/2005/08/term-sheet-series-wrap-up.html- Fred Wilson, MBA Monday Series on Equity: http://www.avc.com/a_vc/2010/09/employee-equity.htmlhttp://www.avc.com/a_vc/2008/11/restricted-stoc.html- How Stuff Works, Stock Options:http://money.howstuffworks.com/personal-finance/financial-planning/stock-options1.htm- Paul Graham, Equity Equation: http://paulgraham.com/equity.html- Pop History of DIg, "Apple Rising: 1976 - 1985" http://www.pophistorydig.com/?tag=apple-computer-ipo- Startup Company Lawyerhttp://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election/- ZD Net, Facebook IPO: Final Numbers: http://www.zdnet.com/blog/facebook/facebook-ipo-final-numbers/ 13257- Wikipedia, Restricted Stock: http://en.wikipedia.org/wiki/Restricted_stock- Wikipedia, Preferred Stock: http://en.wikipedia.org/wiki/Preferred_stock

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