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.

Double Down on Marketing

If you want to compete in the world of high... Read More

The Power Of Personal Environments

I've got to admit, I'm a big fan of comfort.... Read More

CHINESE TAKE-OUT: Oriental Business Principles Demystified For Online Enterprises

"The expectations of life depend upon diligence; the mechanic that... Read More

Starting Up and Keeping Going

So you had that fantastic business idea, the one that's... Read More

Competitive Edge

In his book, The Road Ahead, Bill Gates of Microsoft... Read More

Are You Sure You Want To Start Your Own Business? Part Two of a Series

Why, exactly, do you want to go into business for... Read More

Meet Success: Business Profile of Sylvia Acevedo, Communicard Owner

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

Will Your Business Survive Without You?

I had a health scare in December.As it turns out,... Read More

Identifying the Right Venture Capital Firm Partner

Venture capital firms are comprised of individual partners. These partners... Read More

Entrepreneurial Excerpt from a Speech to Small Business

Having built a business from a bucket of water and... Read More

Top Ten Ways to Increase Your Profitability

1) Go back to basics. Take a couple of steps... Read More

How To Get More Clients and Customers; Dont Sell Be of Service

Whether you are just starting your business or focusing on... Read More

A Dorm Room With A View

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

Could a Book About Your Company be Worth $1.7 Billion? Building Value Through Publishing

"Berkshire Hathaway (NYSE: BRK.A) to purchase Clayton Homes for $12.50... Read More

Financial Strategies for Transitioning from Salaried to Solo

7 Financial Strategies for Transitioning from Salaried to SoloA 40's... Read More

The Secrets to Becoming a Successful Creative Entrepreneur: JJK Secrets #19-21

Hello Creative Entrepreneurs!Welcome to the e-class on Creativity & Entrepreneurship:... Read More

Youth Entrepreneurship, A Disappointing Truth

The psychology of entrepreneurship can be very rewarding to one... Read More

16 Vital Traits Shared by All Successful Entrepreneurs

The first step in deciding whether to start a business... Read More

Needs Versus Wants For Entrepreneurs

How often do the words "I need" come out of... Read More

The Magic of Thinking Small

Hey!Many of you might disagree and I'm prepared for that.Many... Read More