Maintaining a clean, paper trail of securities transactions is a prevailing issue for many companies. At the nexus of this is SEC Rule 144, which stipulates that certain conditions must be met in order for the sale of securities to take place.

The effective tracking of securities is vital for private companies seeking to enter the public marketplace. Steering clear of knotty compliance issues and delays pursuant to any SEC due diligence reviews is paramount.

A key qualifier for the Rule 144 exemption is meeting the holding period for each security issued prior to resale. Pursuant to the Securities Exchange Act of 1934, an issuing company that’s also a reporting company has a qualifying holding period of six months. For those companies that are not in a reporting capacity, the qualifying holding period is one year.

This holding period commences on the original issuance date of the security, irrespective of resale or conversion. Many private companies, however, fail to track and account for this on their capitalization tables. This can be problematic if an audit is ever conducted.

To learn more about Equa and sign up for a free trial, please visit us at www.equa.global

What Is an Option Pool?

An option pool consists of shares of stock reserved for employees of a private company. The option pool is a way of attracting talented employees to a startup company - if the employees help the company do well enough to go public, they will be compensated with stock. Employees who get into the startup early will usually receive a greater percentage of the option pool than employees who arrive later.

The initial size of the option pool may decrease with subsequent rounds of funding because of investors' ownership demands. The creation of an option pool will commonly dilute the founders' share in the company because investors (angels and venture capitalists) often insist on it.

KEY TAKEAWAYS

How Option Pools Are Structured

The shares that comprise an option pool typically are drawn from investor stock in the company rather than the shares earmarked for investors. This may be 15%–25% of the overall outstanding shares and may be determined when the startup receives its earliest funding round as part of the overall terms put in place.

It is also possible that a company, over the course of its development and subsequent funding rounds, may establish additional option pools after the initial one is put in place. The size of the pool may be dictated or advised by the venture backers to be a portion of the pre-money or post-money valuation of the company. Negotiations over the scope of the option pool can affect the startup’s overall price. For example, investors may want an option pool offered post-money option to be priced at the pre-money valuation, which could lower the price for the company.

Other Considerations

The shares disbursed from the option pool may be determined by the roles of the employees as well as when they are hired. For example, senior management that is brought on board near the founding of the startup may receive a percentage of the entire pool, whereas later employees in more junior roles might be granted just fractions of a percent.

The option pool grants shares that, like other types of stock options, often require a period of time before they are vested. This means the employee will not be able to benefit from these shares possibly for several years. By delaying their ability to reap monetary value from their portion of the option pool, the belief is that the employee will contribute more to the overall health and growth of the company in order to see the greatest possible gains when the shares vest.

A corporate entity is a business structure formed specifically to perform activities, such as running an enterprise or holding assets. Although it may be comprised of individual directors, officers, and shareholders, a corporation is a legal entity in and of itself.

Generally speaking, there are three general forms of legal entities through which business can be conducted: (1) sole proprietorship, (2) corporation, and (3) partnership.

There is also the limited liability company (LLC), a business structure that can integrate the pass-through taxation of a partnership or sole proprietorship with the limited liability protections of a corporation. LLC’s are technically not a corporation under state law. Rather they are legal structures that deliver jurisdictional limited liability protection to business owners.

These various forms of entities are legally able to enter into agreements or contracts, purchase property, assume obligations, open a bank account, incur and pay debts, sue and be sued in their own right, and issue stock under their business umbrella.

Businesses throughout the world utilize corporate entity structures. A corporation’s most important attribute is its limited liability provision. This allows shareholders to accrue profits through dividends and stock appreciation without being personally liable for company debt.

Establishing a Corporate Entity

Corporations are created through an incorporation process initiated by either a single shareholder or a group of shareholders with ownership rights to the corporation. This begins with the filing of Articles of Incorporation in the state jurisdiction where the corporation is seeking to be registered.

A filing can occur in a state outside of where the corporation is located. States like Delaware, Wyoming, and Nevada have favorable incentives for companies registering in their geographic locations. These corporations, however, are required to register as a “foreign” corporation in the state where they actually reside and engage in their business operation.

In these out-of-state scenarios, a corporate entity is typically required to designate a registered agent (a person or company designated to serve as the legal contact of record).

Another benefit of corporations is their ability to provide for unending succession. So, they may technically exist in perpetuity unless dissolved.

A corporation can be set up as a non-profit, as in the case of a charity. However, the vast majority of corporations are established with the intent to provide a return for its shareholders.

To learn more about Equa and sign up for a free trial, please visit us at www.equa.global

A “Cap Table” (short for “Capitalization Table) is a document, typically in the form of a spreadsheet or table, that offers a snapshot of a company’s equity capitalization and total market value.

While commonly used by startups and early-stage businesses, cap tables have utility for all types of companies. In the case of a new startup, the founders are typically the only ones represented on the cap table. This is because they’re the sole equity holders. But as a company matures, the volume of cap table entries expand pursuant to growth in the number of investors as well as company ownership changes.

These documents aim to capture shareholder equity and other sorts of information including common equity shares, preferred equity shares, warrants, and convertible equity. With this, cap tables become a vital decision-making tool for assessing equity ownership, market capitalization, and market value.

Given the financial significance of this information and the fact that companies are constantly evolving, it is paramount for a cap table to be accurate, tailored, and kept current and up-to-date.

One of the common pitfalls with cap tables is that a manually updated Excel spreadsheet can morph into more than one version.

By way of example, the company chief financial officer might manage one copy while outside legal council holds another version. So if a staff member exercises their option and the company forgets to provide an update of this to the lawyer (or vice versa), the two records become inconsistent. It’s here where the reconciliation of these records can become time-consuming and costly

There are many factors and emerging trends that impact capitalization. Therefore accurate and up-to-date cap table provides are paramount for fostering strategic direction and business growth.

To learn more about Equa and sign up for a free trial, please visit us at www.equa.global

Corporate bylaws are a vital element of a newly formed company, providing key rules and regulations for operational effectiveness. They aredrawn up and codified by the board of directors when a corporation is being formed. This document helps to ensure that a business runs consistently from its inception.

Bylaws thus become the critical document to aid the board of directors in their oversight of the corporation.

Terms included in a corporate bylaw are dictated by the guidelines set by a particular state. These typically include important information such as the following:

In most states, limited liability companies (LLCs) are required to create an LLC operating agreement. These operating agreements, essentially function as a set of corporate bylaws, offering guidelines for how an LLC operates as well as owner responsibilities. The documents are often key for responding to legal issues and are legally binding.

Typically LLC’s and corporations are not required to file bylaws and operating agreement documents with the Secretary of State office. They may, however, be requested by lenders, banks, attorneys, and potential investors for various business activities.

To learn more about Equa and sign up for a free trial, please visit us at www.equa.global

Articles of Incorporation provide the basic legal framework by which a company operates in a particular state or jurisdiction. Considered a public record, it codifies key business activities, owner names, and stock information for the company.

For an LLC, this document is referred to as an “operating agreement.”It describes the operational activities for the company as well as owner responsibilities.

To register a business as a separate entity, Articles of Incorporation must be filed with the Secretary of State’s office in the locale in which the company intends to do business. LLC’s, however, are not required to have an operating agreement or even file one.

Each state has its own requirements for the filing of forms. Accuracy in reporting application information is critical as errors and omissions can put a business at risk for legal issues.

To learn more about Equa and sign up for a free trial, please visit us at www.equa.global

How to successfully Raise Capital

Are you finally at the point where you need to develop a better process to raise capital?

Every successful task requires a good process. The more difficult and time consuming a task the more essential an effective process becomes. When it comes to raising capital, this can translate to whether your company hits its goals, achieves the desired valuation. With this in mind, what can you do to improve your performance?


Setting the foundation

With our clients, we advise them based on our past success and failures. This advice is a well-constructed soup to nuts process that entrepreneurs and early stage companies process that can be followed every in every round.

Key elements we instruct on, include:

·      Researching your potential investors

·      Getting advice early and often

·      Crating all the necessary collateral like pitch decks and executive summaries

·      Nurturing relationships

·      Choosing the terms

·      Following up

·      Negotiation

·      Closing the round

·      Delivering on promises to each investor.

Be Patient

When planning to raise capital, it is important to understand that investors aren’t going to invest in your company without having an established and valued relationship. Equally important to understand is that not every investor is the right investor. Therefore, taking the time to build relationships is key to future success as these individuals will often take on advisory roles or board seats. With that in mind, expect that raising a round will take months in the best of times. With the global Covid19 pandemic disrupting markets and spooking investors, it can take longer. So being patient and setting appropriate expectations will help ease minds as the next market disruption can happen at any moment.

As you go down this road, you will need to treat the capital raise process like sales. Each lead requires constant nurturing and follow up in order to close. Larger deals can take up to a year so even when you’re not raising capital you should be strengthening relationships.

Remember, set appropriate expectations, be patient, and start preparing for that next round today.

Uncertainty

When planning your process, it should be noted that there is no guarantee of success relative to your timelines, valuation, and financial benchmarks. This shouldn’t come to a surprise as every aspect of the entrepreneurial journey is riddled with roadblocks.


To that end, if you are willing to take on the advice form mentors and be humble and resilient you can get to the finish line. Willingness to adapt and change strategies will always be key tools to realize the goals set forth in your business plan and executive summary. Once again, expect unforeseen challenges like changes in the global markets to happen and be willing to do what it takes and be unreasonable when it comes to success.

When will it end?


Raising capital isn’t fun but it’s essential if you want to build growth and success. Making sure that you hold on to a positive state of mind will make a huge difference in overcoming each challenge. This is important to pass on to your team as they will be looking to you for guidance and leadership. Visualizing failure breeds apathy in those around you, whereas living future success in the moment will create a culture of resilience and tenacity.

Create a great pitch deck

Selling you vision requires a quality deck that follows a well-defined template. Without a great pitch and deck, it will communicate a weak message to investors that are inundated with deal flow. Consider the point that you are only as strong as your weakest asset. This is equally important in the quality of your team that must constantly execute despite lacking money or resources. 


Don’t be the smartest person in the room

Even people at the top of their fields look to get better or gain any advantage to stay at the top. Just look at Tony Robbins and Tom Brady. They are world renowned, very successful, yet they continue to find an edge. If they’re doing it so should you. Surround yourself with coaches, and experts to remove blind spots. When it comes to raising capital, seek out those that have a track record of success and absorb all that you can. Remember, you are competing with potentially hundreds or thousands of other entrepreneurs in your space for limited investor capital.


Network! Network! Network!

We live in a noisy world full of notifications, news feeds, texts, emails etc. Therefore, knowing how to get through to investors requires a lot of follow up work and relationship building. Be creative when it comes to getting through to those key investors. Learn who they are influenced by, learn who their gatekeepers are and use every type of communication to follow up with them in an attempt to build relationships with your targets.

Knowing what you don’t know

Every entrepreneur starts off with a different composition of skills, and weaknesses. Likely, raising capital is not among your strengths. Therefore, as you learn all the things you need to know to build a successful organization, add raising capital to that list! Sure, you can go and hire an investor relations ninja. However, being prepared to fight as though your life depends on it requires being knowledgeable when it comes to communicating, negotiation, networking and follow up. Regardless of your industry, being a constant student will improve your chances of not being ignored.

Data rooms are cloud applications that facilitate the secure storage and sharing of confidential information, including business documents. These virtual constellations are now the norm and are rapidly replacing the need for actual physical documentation.

Properly administered, these systems represent an additional layer of security for business documents. They can also reduce friction when it comes to the movement of documents contributing to the speed and execution of a transaction.

Essentially, a data room acts as a hub for all sorts of engagements that require a robust and secure environment for storage, management, and sharing of business information. These systems then become globally accessible through an internet connection.

Companies facing various forms of due diligence and asset management requests find data room solutions of immense value. They are particularly useful in the facilitation of collaborations and working relationships between business stakeholders.

Traditionally employed in the financial world, data room use cases have experienced a major growth trajectory over the past decade. Mergers and acquisitions and joint venture investments are two realms where virtual data has grown in popularity. Operating agreements, patents, and compliance records are other areas where these digital systems are seeing growing adoption.

In the future, data room solutions will increasingly make use of artificial intelligence and machine learning technology to boost such features as automatic document translations and query management. Other features that are making an advancement include notation systems, advanced permissions, and multi-factor authentication.

Then there’s the emergence of Blockchain that promises to upend the world of traditional archiving, with secure data rooms validated with the timestamping phase of a transaction.

Below is a list of common questions and answers about the Equa data room and why Equa represents such a promising new normal for businesses and enterprises.

How are documents transferred into the Equa data room?

The client success team will work with you every step of the way to ensure an easy and secure upload of your files to the Equa data room. Through this manual process, we collect everything our clients need to set up a corporate data room successfully. We conduct a thorough gap analysis of your documents before migrating them into our system.

As we begin to digitize the individual and unique clauses of operating documents, vendor documents, employment documents, cap tables, — anything tied to governance and compliance activities within your organization, we will turn all of those documents into digital forms that will be updatable and changeable as you progress through your business cycles. Our aim is to ensure a smooth and safe transmittal of this information.

Who manages a data room, Equa or the client?

The aim is for both Equa and you, the client, to have full administrative control over the contents of a data room. What that means is, while Equa could produce documents that could land in your data room, you as a client will also have your own documents that you’ll want to upload and manage.

What makes the Equa data room so valuable?

Keeping track of myriad business documents is an immense, time-consuming hassle for most organizations. A compliance review can be an absolute nightmare as well, unless you’re fortunate enough to have a really good lawyer who’s exquisitely well organized with files and can retrieve them on a moments notice. The value of a data room is in this retrievability, along with the accessibility and authoritativeness of having the most recent, up to date independently verifiable source of a document.

How easily can we retrieve documents?

With Equa, not only are your documents retrievable on a moment’s notice, but you also have the ability to amend them very quickly. And it’s very cost-effective compared to other options.

How do we engage with the Equa platform once our documents have been downloaded?

Our intuitive dashboard comes with simple and easy-to-understand workflows to ensure a world-class user experience. This, in turn, helps to boost the overall efficiency of your document storage and retrieval processes.

What if we want to make changes to a document?

The ability to make changes or amendments to any governing document is essential to ensuring the most up to date, accurate repository. Equa provides a seamless platform for ensuring a single source of truth for all your documents.

How does this update and access process actually occur?

Once uploaded, we’ll produce the original documents which will allow those designated to digitally signed these documents. We will also create hashed versions of these for the blockchain with those links of information stored within our system so you can see the who and when of any amendments to the document.

Who controls access to these documents?

Once you make changes to, say, a Capitalization Table or other operational document, we’re going to back that up on a blockchain, creating a public record that’s independently verifiable by each individual who had access to the original document via a private key. Here at Equa, we’ll help you manage and control access to those documents, along with providing auditable records of all of who accessed them and when they were accessed.

And who can be given access?

That’s for you to determine. It could include two corporate administrators, a president and a vice-president, the corporate lawyer or employees who have been issued stocks in an organization. Each person is going to have different levels of access to the data room, or different data rooms specific to their needs. Those different levels of access will provide them with different pieces of information that are appropriate for their levels of exposure.

Is there a particular protocol that ensures this access?

Essentially what we’re talking about here is data storage with private key encryption and basic log in protection which allows each person access at the appropriate levels. Audit trails are then going to tag along as people with the right credentials are able to access certain documents.

What about our paper documents?

Paper versions do ultimately get filed with some jurisdictional or government agency. The good news is that digital options to file those paper versions have been developed. Those are the types of partnerships we’re looking to build through Equa over time.

What is the ultimate value proposition that Equa delivers?

For both you as a business and your community of stakeholders, your cost and productivity value exponentially increase in terms of greater efficiencies around agreements. Decisions can be made more quickly with the rapid processing and dissemination of information. It’s like rocket fuel for businesses that want to move more quickly while staying compliant.

Launching a new business? Putting in long hours?

Congratulations.

Now for the not so good news: You’re likely going to have a few bumps and hurdles along the way.

As an entrepreneur the possibilities for errors are endless: Like failing to file important compliance documents. Or overlooking an important tax filing deadline. How about blowing through all of your startup funding.

When these and other mishaps occur, it’s so easy to write them off as simply another case of “we didn’t know what we didn’t know.”

But here’s the good news:

Every mistake you make is a learning moment

Below are seven of the most common pitfalls startup entrepreneurs make when launching a new business.

Regardless of whether you’re a newly minted entrepreneur or have been into your business for the past 2–3 years, we invite you to capture some notes and heed the call to action on what you read below.

Pitfall #1: Too Much, Too Fast

You’ve started your business and the adrenaline is flowing. Things have reached a fever pitch. You’re feeling ambitious and on top of the world. And yes, of course, you’re expecting immediate results.

“Next week we’ll be profitable,” you tell yourself. And then you have a Chinese Bamboo Tree moment.

When you find yourself in this trap, it’s important to keep in mind that we often OVERESTIMATE what we can achieve in “Year One” while UNDERESTIMATING what we can do in say Year Five.

The lesson here:

Mistakes are going to occur. So you may as well learn from them.

Pitfall #2: Putting off Setting Up a Corporate Entity:

If you have a highly conservative accountant they will likely tell you that you can get away with simply registering with your Secretary of State as a sole proprietor. But there’s more to this story so listen up: Setting up a business entity ( LLC, S Corporation, or C Corporation) right out of the gate may be an important step for you to consider for one major reason, namely, it can serve as a form of liability and personal asset protection in the event that you’re sued.

Pitfall #3: Not Having a Good Bookkeeping System

Here’s an often overlooked fact: Having a great bookkeeping system (i.e. keeping those receipts) will not only allow you to maximize your tax writeoffs but save you a ton of headaches and extra CPA costs at tax time.

Back in the day, the modus operandi was to toss all of your lose receipts in a bag and hand them off to your bookkeeper monthly for reconciliation. Today we have great online sites and apps that can assist with digital downloads of bank statements and receipts. So there are no excuses for not having a good system in place.

Pitfall #4: A Lack of Startup Funding

It’s well documented that the number one cause of business failure is a lack of funding and working capital. Therefore it is an important piece to get a handle early on in terms of what will it take to keep your business running on a day-to-day basis. Otherwise, this disconnect could lead to funding shortfalls that might quickly put your business in peril.

Your Secret Sauce for better funding outcomes: Learn about the importance of Cap Tables.

Pitfall #5: Poor Sales Execution and Growth Mindset: As a startup, building a sales funnel can often lose importance in our list of priorities even though we are well aware of its importance. It goes without saying that this can lead to disastrous consequences.

Grant Cardone in his bestselling book entitled The 10X Rule: The Only Difference Between Success and Failure admonishes us to take massive action in the work that we do, saying that it is vital for the success of our business.

Here is a brief video of Grant discussing his 10X Growth Mindset!

Pitfall #6: Taking Shortcuts With Your Product or Service

The late inspirational speaker and thought leader Jim Rohn noted in one of his early seminars, “You get paid for bringing value to the marketplace, and if you’re not very valuable you don’t make much money.

The same is true for your business: The MARKETPLACE VALUE of your product or service is what will ultimately determine your business success. In other words, if you focus on all of the other details of your business versus working on the quality of your product or service, your business will likely see an early demise.

Pitfall #7: Lack of Strategic Direction

Here’s the key: Find your business sweet spot and then stay in your lane. Because if you disperse your energy in too scattered of a fashion, you will experience the Law of Diminishing Returns and your business will crumble.

Here’s a great book to read on this point: Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by W. Chan Kim and Renee Mauborgne

Copyright © 2021 Equa - All Rights Reserved.
This site is operated by Equa, Inc. (“Equa”), which is not a registered broker-dealer. Equa does not give investment advice, endorsement, analysis or recommendations with respect to any digital securities. All securities and digital securities managed by Equa platform are offered by, and all information related thereto is the responsibility of, the applicable issuer of such security or digital securities. Neither Equa, Equa Start, Equa Transfer nor any of its officers, directors, agents and employees makes any recommendation or endorsement whatsoever regarding any securities or digital securities on the Equa platform or app. Nothing on this website should be construed as an offer, distribution or solicitation of any securities or any digital securities. Equa does not provide custodial services in connection with any securities or digital securities.