Will all due respect, iamyoohoo, it is done all the time, especially in Silicon Valley. Keep in mind that we are talking about a company that has no product, no revenues and is losing money (Founder's money). Then on one day, it has $5M in the bank and a Board of Directors of big name VC's. In fact, let's look at the problem in reverse. If the company is truly worth $15M (with the Founder's IP) and then then the VC's put in $5M to get 25% of the company, then why are we giving them preferred stock. The reason is simple. Until the company has the $5M, it was worth zero. In fact, even after the investment, we would price the common stock at 1/20 if not less of the preferred stock (so that future employees can get options at a discount price).
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Will all due respect, iamyoohoo, it is done all the time, especially in Silicon Valley. Keep in mind that we are talking about a company that has no product, no revenues and is losing money (Founder's money). Then on one day, it has $5M in the bank and a Board of Directors of big name VC's. In fact, let's look at the problem in reverse. If the company is truly worth $15M (with the Founder's IP) and then then the VC's put in $5M to get 25% of the company, then why are we giving them preferred stock. The reason is simple. Until the company has the $5M, it was worth zero. In fact, even after the investment, we would price the common stock at 1/20 if not less of the preferred stock (so that future employees can get options at a discount price).
--Denny--