Washington Business Attorneys & Lawyers

Updated July 20, 2020: 

What Is Preferred Return?

A preferred return—simply called pref—describes the claim on profits given to preferred investors in a project. The preferred investors will be the first to receive returns up to a certain percentage, generally 8 to 10 percent. Once you reach this profit percentage, the excess profits are split among the rest of the investors as agreed upon in negotiations. This type of return is most commonly used in real estate investment.

How Is the Preferred Return Calculated?

There are three main questions when it comes to calculating the preferred return:

• Is it compounded or non-compounded? Compounded means that the calculation of a preferred return periodic growth amount comes from the amount of invested capital plus all previously earned but unpaid amounts.

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Updated July 2, 2020:

Non-Dilutive: What is it?

Non-dilutive usually refers to the type of financing for a business where they do not lose any equity in the company. Non-dilutive financing means that they receive money for the business without giving away any ownership of the company itself.

Dilutive Versus Non-Dilutive Financing

Dilutive financing is any kind of fundraising where you give up ownership of your company. Examples of dilutive financing would be selling shares to angel investors or venture capitalists.

Non-dilutive financing is the type

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What are Startup Costs?

Startup costs are (1) the expenses a business incurs before it is actually operating plus (2) the cash the business will need to pay its recurring operating expenses during the post-launch period when it is generating insufficient cash flow to cover those payables.

A Good Business Plan Is Crucial

The founders of a new business should devote significant time and effort to the preparation of detailed business plan so that the startup costs are not underestimated. A miscalculation in this area can have a variety of bad consequences:

• A delayed store opening or product launch

• Last minute borrowing for startup expenses and working c

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What Is a Down Round?

A "down round" is a round of financing where investors pay less for the company's stock than the previous investors. If it happens to your company, it doesn't mean the end times are coming, but it is a major wake-up call and a sign that something needs to change.

The companies that can go through down rounds are startups and other private businesses that don't trade stocks on a public exchange. With no public trading, they sell stock in rounds to private investors. Since a stock exchange can't set the company's value, the company and the investors have to work out their value instead. And when this sets the company's value to lower than it was before, it creates a down round.

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Raising venture capital is difficult and venture capitalists (often referred to as “VCs”) have become very selective about the companies in which they invest. A typical VC may finance only one or two ventures out of a hundred because, for example, the other companies were not in one of its preferred industries, the VC does not see enough potential in the business, or the entrepreneur was not referred to the VC by the right person. If you think your startup might be ready to go after venture capital here are some tips on how to make your final decision and get the process started.

1. Decide on Your Goals

What do you want from your business? Are you trying to take over the world, or do you just want stability? Do you feel strongly about being the sole decision-maker, or are you OK with sharing control?

The main goal of VC firms is to get big so they can

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