Notes

Basics of Capitalizing on founder equity splits
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Robert R. Ackerman, III is the founder and managing director of founders equity partners and the founder and managing director of Silicon Valley based cyber security firm, Founders Equity Partners. As a private investor he has made a fortune by capitalizing on technology and Internet companies that are poised to dominate their markets. He chairs the board of directors of several companies that invest with him. Mr. Ackerman is an accomplished trader and investor who serves as a member of the boards of trustees of several colleges and hospitals.

Bruce L. Kassen is the author of many books on investing and entrepreneurs. In startup has become one of the leading consultants on entrepreneurs and the best selling author of multiple titles on how to be a successful co-founder, CEO and investor. Mr. Kassen is a Managing Partner at Voyeur Investment Management, where he is primarily focused on growth and technology companies. Bruce has traveled the world both as an individual investor and as an advisor to entrepreneurs, being guest speakers at many colleges and corporations. He has been active in the private placement industry for several years and has been a guest speaker at the World Entrepreneurship Conference.

James D. Brown is a venture capital and business development investor. He is the president and chief executive officer of Voyeur Investment Management. Mr. Brown is a graduate of the Ecole Polytechnic Institute in Paris, France and is an active member of the National Association of Business Owners and an advisor to several other businesses, including Founders Equity Partners, TIAACREF, and Voyeur. Mr. Brown believes strongly that entrepreneurs must have a stake in their companies in order for them to successfully complete their venture. He advocates that "venture capital" and "equity" go hand in hand and that the founder and company must have a stake in order for that venture to succeed.

Mr. Brown describes founders equity and venture capital as two sides of the same coin. He believes that when an investor puts their money into a business that there is a guaranteed return. In contrast, he feels that venture capitalists, or private investors, do not necessarily have a return on their investment and can lose their money more easily. He feels that time-based vesting of stock is a very good method of managing these risks. Time-based vesting allows the investor to receive a dividend even if the company is still operating years after the initial investment.

The concept of founders equity and venture capital has been around for a long time, but it is relatively new to California. startup are required by law to provide certain information regarding their equity and capital structure to their prospective investors. In California, this information must be provided in the form of a document called a Certificate of Incorporation or Articles of Organization. The most common type of document is the C.O.

In California, the "common stock" option for founders equity splits is used instead of the traditional option to select additional shares of common stock for the co-owner and vice versa. California law requires the company to first obtain approval from the California Corporation Commission in order to use the option to split the company. There are some unique stipulations regarding the use of the "common stock" option and a certificate of incorporation will be necessary for this purpose.

In essence, vesting of shares is a two-step process that occurs at the initial public offering (IPO) of the business. At the IPO, the price of the company's common stock is calculated based on the current value of the company's issued equity, less cash and preferred or common equity (owner equity). A founders equity is then calculated by adding the company's debt and equity to the net worth of the business. The founder then gets a right to either receive cash only (or more than he or she would if the business were a typical publicly traded corporation) or to sell a percentage of the company's equity in the event of its failure. There are no restrictions on the type of entity that may own the company (i.e., C.O.D. or an individual) and there are no restrictions on the number of shareholders (the number of times that a dividend can be sold).
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