Do You Pay Back Angel Investors?
Do You Pay Back Angel Investors. In the context of Angel Investing into a startup, the Angel Investors are typically ending up with stock in the company.
It is pre-IPO stock, whereas the Founders invest in a private company for the purpose of gaining equity ownership in the company.
The IPO Stage
However, the Founders will be holding on to their private company's stocks during the early days, or even until the IPO stage.
Do You Pay Back Angel Investors, But, when does the Founder begin to make good on the money they originally invested into the private company?
It would seem that at the point of going public, the Founder should be considered as “earning” their equity investment in the company.
Well, you would be surprised to know that this isn't necessarily the case.
It would seem that as soon as the private company is listed on the exchange, equity holders become shareholders and stockholders in the same company, the same ownership does not necessarily equal cash ownership.
Vote On Matters
It also doesn't necessarily equate to the ability to vote on matters pertaining to the company.
In fact, in some instances, equity holders have not entitled to any equity ownership position and stock is only equity minus a certain amount of dividends.
Why does this happen?
Some exchanges do not accept non-US companies.
What does all this mean?
NYSE Or The NASDAQ – Do You Pay Back Angel Investors
If you had invested $10,000 into a private company at the pre-IPO stage and it got listed on the NYSE or the NASDAQ, Equity Viability and liquidity go out the window and equity becomes equity minus dividends.
Your ownership position in the company diminishes and it becomes equity minus a certain amount of dividend.
Do You Pay Back Angel Investors, In other words, if you originally invested $10,000 and got a minimum of $100,000 in dividends, your ownership position in the company shrinks to the $1,000 per share that you originally invested minus the $100,000 dividend payment.
If you are not entitled to any dividend then your ownership position shrinks to $1,000 per share and you are still owning a company, but you are not paying any dividends.
This is why you often hear of Founder's selling their stock at the IPO stage.
It is also why you often hear of IPOs going belly up and why you often hear of private companies folding in bankruptcy.
Transferred To The Chapter 11
When you invest in the bankruptcy process, your shares are being transferred to the Chapter 11 process and can be repurchased by creditors after a while if you wish to do so. In either case, you are not entitled to any equity position in the company.
So, now you know that you are not entitled to any equity position in a private company, you know how to buy or sell shares and you know that equity and ownership get transferred when you buy or sell shares.
Do you also know why stocks are sometimes called “equity shares“?
It is a misnomer.
It gives the false impression that you are contributing to the company equity. However, equity means a certain amount of ownership in a company.
Some companies issue very few shares but they do contribute to the equity of the company. It is very rare to see companies issue large amounts of equity shares.
Why are large amounts of equity shares issued by companies?
Well, these shares are usually the result of a merger of 2 or more companies. In this case, the company issuing the shares gets the equity contribution of both the companies merged.
The share prices will go up.
Large amounts of equity can also be offered to shareholders when a company decides to repurchase its shares.
Here, the shareholders are getting a small ownership contribution to the company. Most companies repurchase shares at very low prices and offer a substantial contribution toward the equity of the company.
The only reason why the stock market makes a lot of noise is that people are trading shares. You see, a stock is a share in a company and if the company goes bankrupt, the stockholders are the last to be paid.
Pension Scheme Contributions
They get the last salary allowance, last severance allowance, and last pension scheme contributions. If the company is floated again, they get the equity contribution that is offered to the shareholders.
It is your share in the company that will be offered to you again when a company is formed.
How does the company offer shares?
Well, most of the time, the shareholders get an email regarding their shares and they get to choose from a list of stocks that are offered.
Best Potential Stocks
You see, companies prefer to do list trading to get the best potential stocks. If you are wondering why they offer you such a huge list of potential stocks, the reason is simple.
The stock market is highly volatile and the movement is very fast. Therefore, if they offer you a list of 20 stocks, they have to choose 5 stocks that will give them the best chances of getting the desired profit in the short term.
Do You Pay Back Angel Investors, Once a company is formed, they start putting in money into the company. The shareholders will get dividends every 3 months or even more depending upon the value of the company.
You can have a small stake in the company if you are a shareholder and have decided to hold on to your shares.
So, if you decide to be a shareholder in a company, you will be offered the best shares at the best prices.
As a shareholder, you will get 2 options.
You can have partial voting rights or you can vote in one representative vote.
What is a representative vote?
The Voting Rights
It is a vote that will increase your importance in a company. The voting rights will help you get a voice and be heard in how the company will be run.
You can even propose a new plan that will help the company to run better and better.
Benefit The Company
The companies look at the proposal with a critical eye and if it seems to benefit the company, then it will be considered by the Board of Directors.
A company that is on the verge of collapse will try to buy out the other, in order to prevent bankruptcy.
And once that is not possible, the company will be in an ugly situation and they will try to merge with another company to save themselves. The shareholders have a say in all that is happening in the company.
Do You Pay Back Angel Investors, The best thing about these companies is that they are smaller and better capitalization. So a company that is on the verge of collapse will be saved if you buy the shares in them. And they will be able to pay you a dividend that will be higher than the others, for many, many years.
If you are still wondering about the best stock to buy, Go to the VC Crowd for beginners and they will build you a great portfolio and it will grow every month as they allocate shares to members every month as part of your membership.