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Private Company Warrants: An Overview

3/20/2021

Warrants to purchase stock in private companies enable the holder of the warrant to buy shares of stock in the company at a specified price for a certain period of time. Warrants are issued by private companies to investors, lenders, vendors and partners as part of a transaction or as an incentive to enter into a transaction or a financing.

Warrants are very flexible agreements and can be customized for a particular situation. This post provides an overview of private company warrants.

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Private Company Stock Option Plans: An Overview for Investors

3/17/2021

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Imagine being an early employee of a startup and being granted stock options as part of your compensation package. A few years later the company goes public and your stock options are worth several million dollars. This is a story that has been repeated many times the start-up world.

Stock options provide a way for officers, directors, employees and consultants to share in the upside in the equity value of a company. Companies issue stock options to attract and retain talent, and to reward these people with upside in the company’s value. Investors in start-ups recognize the value of stock option plans, and make sure the company will have a suitable stock option plan in place to attract and retain top-level talent.

This post provides an overview of stock option plans.

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Venture Capital Financings: Drag-Along Rights

3/9/2021

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Drag-along rights enable a group of stockholders (such as a majority of the preferred stockholders) to force a sale of the company. These rights are called “drag along” because the stockholder group exercising the right are in effect dragging the other stockholders along in the transaction.

Why do preferred stock investors in start-up companies (such as venture capital firms) want these rights? To ensure that if the preferred stockholders want to sell the company, they can.

Drag-along rights are a bit complex, and this post will try to demystify them.

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Venture Capital Financings: Co-Sale Rights

3/4/2021

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In the prior post “Preferred Stock Financings: Rights of First Refusal” we discussed the right that the company and stockholders have to acquire the shares of stock being offered for sale by an existing stockholder.

A related right is the Co-Sale right, also known as “tag-along” right or “take me along” right. A Co-Sale applies when an existing preferred stockholder in a privately-held company has received an offer from a potential buyer (known as a “third party”) to buy its stock. The Co-sale right enables existing stockholders to sell their stock alongside the selling stockholder in this transaction.

Let’s explore the mechanics of a Co-Sale right.

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Private Company Warrants: An Overview

Private Company Stock Option Plans: An Overview for Investors

Venture Capital Financings: Drag-Along Rights

Venture Capital Financings: Co-Sale Rights

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