The Use of Common Stock in Venture Capital Transactions

When raising capital for a business venture, a company can either raise debt capital, equity capital or a combination of the two. Debt capital is money loaned to the company at an agreed interest rate for a fixed time period. Conversely, equity capital is money invested by owners (shareholders) for use in business operations that need not be repaid. Combinations include convertible securities which may be debt that can be converted into equity at some point in the future.

The simplest form of equity capital is common stock. Common stock has many distinguishing factors as follows:

- Common stock is not convertible into another type of security

- Each share enjoys one vote

- Dividends are payable without limit but only when declared by the board of directors

- In liquidation, common stock holders are the last priority to which to distribute assets

In venture capital transactions, there may be two types of common stock which are issued. The first is Class A common stock, which is like preferred stock without the special voting rights which some statutes require in shares labeled "preferred." A second type of common stock is junior common stock. While this type of stock is not used very frequently, it allows companies to get cheap stock into the hands of key employees at minimal tax cost.

Determining what type of capital to raise and how to structure the financing transaction is of critical importance to growing ventures. As such, it is crucial to understand the key terms and consult the appropriate legal and business advisors when embarking on the capital-raising process.

Since its inception, GT Business Plans has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share. Growthink has become the firm of choice for venture capital firms, angel investors, corporations and entrepreneurs in the know. For more information please visit http://www.growthink.com or download our free Business Plan Guide.

---

Do You Have What It Takes To Be An Entrepreneur?

Q: I am interested in starting my own business. I... Read More

Strategies for Overcoming Obstacles to Discovering Your Gifts

What are the unique gifts that differentiate you from other... Read More

Securing Second and Third-round Venture Capital Financing

Widget sales are booming ? the competition is scrambling, demand... Read More

Six Steps to Guarantee Your Business Success

Many of us slave away for years for one uninspiring... Read More

Find Me the Expert on This!

Many people who set up as consultants never make more... Read More

Before Getting A Franchise

Buying into a franchise is a great way to be... Read More

Can You Make Money Without Money?

When I ask why you don't start your own business,... Read More

Meet Success: Business Profile of Sylvia Acevedo, Communicard Owner

Sylvia Acevedo needed a break from her technology job so... Read More

Rx for Falling Corporate Profits

Once again the squeeze is on as renewed inflation worries... Read More

Self-Esteem and the Entrepreneur

Isn't it funny how people think that being self-employed is... Read More

Think - Dont React

How you think, your relationship with yourself is what decides... Read More

Book Yourself Solid: The Simple Selling Process

As a service provider you may not want to think... Read More

Innovation incubator: Build it and keep it running

If your company is like the one I work for,... Read More

A Dorm Room With A View

As a senior in high school, he paid cash for... Read More

Profile of Women Leaders

Leadership is based on two words, "pressure and support"and that... Read More

Financing Your Business

Anyone who is serious about making some money is already... Read More

How Good Is Your Big Idea

Q: I want to start my own business. I have... Read More

The Business and Life You Want to Build

In the early days of my first consulting business, I... Read More

Venture Capital Negotiating Issues

When companies enter into negotiations with venture capital firms, there... Read More

The Cockroach Test

Let me ask you a question? Imagine I would offer... Read More

Lets Not Forget About The Little Guy

Every business has to start somewhere. What truly makes this... Read More

Making the Financial Transition

Making the financial transition from paid employment to earning a... Read More

Competing With The Big Dogs

You run a small consultancy. You're well qualified, experienced and... Read More

Customers - Why Should They Buy From You?

There are a whole range of reasons why customers buy... Read More

Leadership Attributes for Business Success

Business success is essentially the result of successful leadership. Contrary... Read More

Is Now the Right Time to Become An Entrepreneur?

A number of economic changes are magnifying the role of... Read More

Entrepreneurs, Are You Hauling Buckets?

Once upon a time, there was a village on the... Read More

Business Start Up Tips From Some Hearty Entrepreneurs

When's the last time someone asked you: "What's new?" If... Read More

Youve Found Your Guru, Now What?

In my last article, "Follow That Guru", I told you... Read More

Are You An Entrepreneur?

With all the buzz about everybody being an entrepreneur these... Read More

Learn how to Compress Time

In the popular 1980's movie "Dune," man learned that by... Read More

Hurricane Katrina, Death, and a Different Type of Entrepreneurship

I've seen terrible images today on the television and internet-bodies... Read More

Creativity & Entrepreneurship: The Creative Evolution of an Intellectual Property©

In each of us, there is a creative spark -... Read More