Precedent and models for 100% equity available via initial offering?
Founder makes available 100% equity, but uses a reasonable amount of the proceeds to pay him/herself a salary (or wage) and from that salary invests in the same initial offering to acquire shares for him/herself.   I see several problems.   What is a reasonable salary?   Also, this leaves the door open to the following scam:  Founders say that they are going to follow this plan.  However, instead of buying shares, they simply quit after being paid the salary.  They use knowledge gained from this business to start a competitor.  Investors are left holding an empty company.   Tax consequences.  The founder would pay income tax on the salary.  By contrast, if the founder instead sells shares, that would be capital gains tax, which is lower in many countries (e.g. the United States).   Why would I want to invest in a business where the founders don't believe in it enough to take a significant equity stake?   Consider the Amazon.com example.  Jeff Bezos makes a minimal salary, around $80,000 a year, less than many of his employees.  But he has a substantial ownership position.  If the company doesn't make money, he won't.  Would investors really value the stocks with a P/E of 232.10 in 2016 if they didn't trust him to make the right long term decisions?   It's also worth noting that most initial public offerings (IPOs) are not made when the founder is the only employee.  A single employee company instead looks for private investors, often called angel investors.  Companies generally don't go public until they are established in some way, often making money.  Negotiating with angel investors is different from negotiating with the public.  They can personally review the books and once invested tend to have input on how the money is spent.   In other words, this is mostly solving the wrong problem if you talk about IPOs.  This might make more sense with a crowdfunded venture, as that replaces a few angel investors with many individuals.  But most crowdfunded ventures tend to approach things from the opposite direction.  Instead of looking for investors, they look for customers.  If they offer a useful product, they will get customers.  If not, they never get the money.   Beyond all this, if a founder is only going to get a fair salary some of the time, then why put in any sweat equity?  This works fine if the company looks valuable after a year.  What if it doesn't?  The founder is out a year of sweat equity and has nothing in return.  That happens now too, but the possibility of the big return offsets it.  You're taking out the big return.   I don't think that this is good for either founders or investors.  The founder trades a potentially good or even great return for a mediocre return.  The investors trade a situation where both they and the founder benefit from a successful company to one where they benefit a lot more than the founder.  That's not good for either side. Specifically I was wondering, how can the founder determine an appropriate valuation and distribution of shares; ie- the amount of equity to make available for public vs how much to reserve for him/herself. This is an art more than science. If markets believe it to be worth x; one will get. This is not a direct correlation of the revenue a start up makes. It is more an estimated revenue it would make in some point in time in future. There are investment firms that can size up the opportunity and advise; however it is based on their experience and may not always be true reflection of value.
"In the case of an ""initial public offering"", the brokers underwriting the share issue will look at the current earnings being generated by the company and compare these to those of other competitor companies already listed in the stock market.  For example, if a new telephone company is undertaking an initial public offering, then the share price of those telephone companies which are already traded on the stock market will serve as a reference for how much investors will be willing to pay for the new company's shares.  If investors are willing to pay 15 times earnings for telecom shares, then this will be the benchmark used in determining the new share price. In addition, comparative growth prospects will be taken into account.  Finally, the underwriter will want to see a successful sale, so they will tend to ""slightly under price"" the new shares in order to make them attractive. None of this is an exact science and we often see shares trading at a large premium to the initial offer price during the first few days of trading.  More often that not, prices then settle down to something closer to the offer price.  The initial price spike is usually the result of high demand for the shares by investors who believe that past examples of a price spike will repeat with this initial public offering.  There will also usually be high demand for the new shares from funds that specialise in shares of the type being issued. In the case of a ""rights issue"", where an existing publicly traded company wishes to raise capital by issuing new shares, the company will price the new shares at a significant discount to the current market price.  The new shares will be initially offered to existing shares holders and the discounted price is intended to encourage the existing shareholders to exercise their ""rights"" since the new shares may have the effect of diluting the value of their shares.  Any shares which are not purchased by existing share holder will then be offered for sale in the market." On the off chance that you have thoughts to purchase an utilized car, the initial step includes endeavoring to locate the trustable second hand car dealer that fits your funds. You can sift through the chase in light of different parameters comprising Masai second hand car seller, kms driven, gas sort, body kind and ownership which also rearranges the way to buy second hand car. The utilized vehicle stage at Masai Auto City offers probability to each individuals and venders to list their used Cars available and bear in mind it's far completely fit for you. "IPO is ""Initial Public Offering"". Just so you know. The valuations are done based on the company business model, intellectual property, products, market shares, revenues and profits, assets, and future projections. You know, the usual stuff. Yes, it is. And very frequently done. In fact, I can't think of any company that is now publicly traded, that didn't start this way. The first investor, the one who founds the company, is the first one who invests in it after raising the capital (even if it is from his own bank account to pay the fees for filing the incorporation papers). What is the difference between ""normal"" investor and ""angel""? What do you refer to as ""angel""? How is it abnormal to you? Any investor can play a role, depending on the stake he/she has in the company. If the stake is large enough - the role will be significant. If the stake is the majority - the investor will in fact be able major decisions regarding the company. How he bought the stocks, whether through a closed offering, initial investment or on a stock exchange - doesn't matter at all. You may have heard of the term ""angels"" with regards to high-tech start up companies. These are private investors (not funds) that invest their own money in start ups at very early stages. They're called ""angels"" because they invest at stages at which it is very hard for entrepreneurs to raise money: there's no product, no real business, usually it is a stage of just an idea or a patent with maybe initial prototype and some preliminary business analysis. These people gamble, in a sense, and each investment is very small (relatively to their wealth) - tens of thousands of dollars, sometimes a hundred or two thousands, and they make a lot of these. Some may fail and they lose the money, but those that succeed - bring very high returns. Imagine investing 10K for 5% stake at Google 15 years ago. Those people are as investors as anyone else, and yes, depending on their stake in the company, they can influence its decisions." "When margin is calculated as the equity percentage of an account, the point at which a broker will forcibly liquidate is typically called ""maintenance margin"". In the US, this is 25% for equities. To calculate the price at which this will occur, the initial and maintenance margin must be known.  The formula for a long with margin is: and for a short where P_m is the maintenance margin price, P_i is the initial margin price, m_i is the initial margin rate, and m_m is the maintenance margin rate.  At an initial margin of 50% and a maintenance margin of 25%, a long equity may fall by 1/3 before forced liquidation, a short one may rise by 50%. This calculation can become very complex with different asset classes with differing maintenance margins because the margin debt is applied to all securities collectively." "After the initial public offering, the company can raise money by selling more stock (equity financing) or selling debt (e.g. borrowing money).  If a company's stock price is high, they can raise money with equity financing on more favorable terms.  When companies raise money with equity financing, they create new shares and dilute the existing shareholders, so the number of shares outstanding is not fixed. Companies can also return money to shareholders by buying their own equity, and this is called a share repurchase.  It's best for companies to repurchase their shared when their stock price is low, but ""American companies have a terrible track record of buying their own shares high and selling them low."" The management of a company typically likes a rising stock price, so their stock options are more valuable and they can justify bigger pay packages." The process would look something like:  1. Register your investment company with the SEC 2. Get the ETF approved by the SEC  3. Get a custodian bank (likely requires min assets of a few million) 4. Get listed on an exchange like NYSEARCA by meeting requirements and have an IPO   1 and 2 probably require a lot of time and fees and would be wise to have a lawyer advising, 3 is obviously difficult due to asset requirements and 4 would probably involve an investment bank plus more fees How is it possible that a publicly traded investment company's net asset value per share is higher than their share price? Wouldn't you (in theory) be able to buy the company and liquidate it to make a profit of (NAV/share - price/share)*number of shares, ignoring transaction costs and such?   I realize that since part of their portfolio is in private equity, NAV is hard to calculate and hard to liquidate as well, but it doesn't really seem to make sense to me. Would love some input.   The company I'm talking about in this instance is 180 Degree Capital Corp, but this isn't the first time I've seen this. That is one of the most unfriendly term sheets I've come across in awhile for a seed round.   Preferred shares with dividends (cumulative I'm sure), 60% stake (reduced if paid back). Any talk on participating preferred? Did he set a cap? What is the valuation for buyback to 20%?   For $50K your buddy better hit up every lost long family member before jumping into bed with this asshole.  Angel Funding Updates: http://www.angelresourceinstitute.org/en/Research/Halo-Report/Halo-Report.aspx  If you want an update on venture funding trends: http://www.cooley.com/venture-financing-report-q2-2014