With 2018 coming to a close we’ve decided to look back at our most popular blog posts of 2018. Interestingly, all of these posts are on the subject of capital raising/financing, which should be of no surprise to anyone who works in the technology sector! Now, onto our most popular posts from 2018:
In our most popular post we discussed the benefits to priced financing rounds, rather than convertible instruments, for early-stage financing rounds. We also cautioned that some investors prefer convertible instruments and others will reject a priced round valuation but accept the same valuation (or higher) as the cap on a convertible instrument. At the end of 2019, I still prefer priced rounds for early-stage investments but only if a Common share is on offer. I am not fond of preferred share priced rounds prior to a company’s Series A financing (I’ve seen this more than normal in 2018) as this is too early a point in a company’s life for such a complex financing structure and the additional restrictions that often follow.
In the runner-up post, we laid out four things every startup should know before embarking on its first financing: (1) know your investment structure; (2) have your investment documents ready; (3) don’t treat investor interest as commitment; and (4) be realistic in the timeline for closing the investment round. I’ll add a fifth: know all your outstanding equity obligations and clean them up before starting the round. Put another way – all those equity offers you wrote yourself can’t be ignored and need to be cleaned up before the first financing begins.
Finally, in third place, was our post detailing three common structures for video game studio profit sharing: (1) draft a profit sharing agreement; (2) create a separate company for each game; or (3) issue shares to profit share participants. While clients came to us with numerous structures for profit sharing in 2018, all went the profit sharing agreement route due to its flexibility.
That’s it for 2018. Stop by again in 2019 for more posts on the law of startups and video game studios, from a Canadian and US perspective.