Mon, 9 October 2023
The Founder's Exit
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
The cap table shows the ownership of the business.
It’s often the case in venture-funded startups that the founder ends up with less than double-digit ownership.
There’s the issue of liquidation preferences and other terms that pay investors before the founder.
In fundraising, make sure the founder’s position is covered and has a path to an exit.
In negotiating the sale, beware of earn-outs in which case the company must meet certain goals to achieve the stated buyout.
A typical earnout is ten to twenty percent of the buyout paid over the course of three years based on achieving sales targets.
The funds used to pay the earn-out are held in a holdback account under escrow.
The control conditions must also be negotiated as it determine who has control over the business and how much control during the earnout.
It’s important to understand earnouts as they impact the founder's exit.
Without a founder’s exit, there’s no motivation to carry the business forward.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
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