This document discusses startup financing options, including debt financing, bootstrapping, equity financing from friends and family, angels, and venture capital. It covers pre-money and post-money valuations, convertible notes, Regulation Crowdfunding, preferred stock terms, liquidation preferences, and returns for investors. Financing requires determining valuation and negotiating terms with investors to structure the capital raise.

1. Startup Financing –
Structuring and Negotiating
the Capital Raise

2. Scott K. Weiss
@SCOTTKWEISS

3. 3
Not Likely
Company must pay back money
with interest
Banks require personal guaranty collateral
Banks require minimum financial
standards
Unlimited upside for investor
Company and investor must
agree on a valuation
Company and investor must agree to
terms

4. 4
 Is debt financing or bootstrapping an option?
 Equity – who do I ask and what do I need to think about?
 Friends and family
 Local angel investors (typically later stage – some revenue)
 How much of my company am I willing to give up
 What is a reasonable valuation

5. 5
Pre-money Valuation
+ Investment
= Post-money Valuation
10%
$900,000
+ $100,000
= $1,000,000
$1,900,000
= $2,000,000
5%

6. COMPANY
Founder
Founder
Founder
Angel
Investor
Venture
Capital
Investor
Venture
Capital
Investor
Series A
Preferred
Series B
Preferred
PublicPublic
6

7. 7
Creditors
Common
Stockholders
$500,000
Series A Investor
$2,000,000$2,500,000
2,000,000 shares @ $1.00/share
500,000 shares @ $1.00/share
625,000 shares @ $0.80/share
Preferred
Stockholders

8. 8
Incentivizes investors to invest without determining a valuation
“Bridge” to a Series A round
Converts at a discount to the Series A price (based on the Series
A valuation and shares outstanding)
Typical discount is 20% but may be customized
Converts principal and interest

9. 9
Federal rules have recently been adopted
Arizona statute
Issuer must be domiciled in Arizona and authorized to do business in Arizona
Meets requirements for intrastate exemption
$1.0m in 12 month period (no audit) or $2.5m in 12 month period (audit)
$10k from any single investor unless accredited
Funds raised deposited into an escrow account
Investor can cancel investment at least 48 hours before offering expiration
deadline
Disclosure document must include identify of control stockholders/people
Several issues to utilizing

10. 10
Preferred Stock (investor)
Shares Percent
Common Stock (founders)
Total
Price per share
Investment
Sale Proceeds
1,000,000
4,000,000
5,000,000
$1.00
$1,000,000
$50,000,000
20.0%
80.0%
100.0%

11. #
Sale Proceeds
Liquidation Preference
Proceeds Remaining
Remainder (pro rata)
Preferred
Common
Return Summary
Preferred
Common
$50,000,000
($1,000,000)
$49,000,000
$49,000,000
0
Dollars
$1,000,000
$49,000,000
$50,000,000
Percent
2.0%
98.0%
100.0%

12. Dollars Percent
#
Sale Proceeds
Liquidation Preference
Proceeds Remaining
Remainder (pro rata)
Preferred
Common
Return Summary
Preferred
Common
50,000,000
50,000,000
50,000,000
-
-
$10,000,000
$40,000,000
$50,000,000
20.0%
80.0%
100.0%

13. Dollars Percent
#
Liquidation Preference
Proceeds Remaining
Remainder (pro rata)
Preferred
Common
Return Summary
Preferred
Common
50,000,000
(1,000,000)
49,000,000
Sale Proceeds
(9,800,000)
(39,200,000)
20.0%
80.0%
$10,800,000
$39,200,000
$50,000,000
21.6%
78.4%
100.0%

14. Weiss Brown, PLLC ▪ ATTORNEYS AT LAW ▪ WWW.WEISSBROWN.C
14

15. SCOTT.WEISS@WEISSBROWN.COM