“Know what you own, and know why you own it.” – Peter Lynch
A while back, a venture capital firm called the Founders Fund began offering a new type of stock to its investors. This stock, called Series FF or FF class, was thought by many an outsider to be an anomaly, but the basic idea harkens back to the beginnings of corporations.
Let’s briefly examine this idea of special stocks and see if and how they can help your small business.
So What Is It?
The Series FF offers founding partners and investors the chance to cash in on their venture financing. It’s essentially equivalent to common stock except that its holder can convert it in a round of subsequent equity financing. This can be done if the buyer of the stock purchases it as part of said financing.
Some additional features include:
- The board must approve the conversion into preferred stock.
- During the conversion, the buyer pays the same price per share as that of the preferred stock.
- It can be converted into common stock at the behest of the holder.
- An automatic conversion into common stock occurs should an IPO occur, or if a majority of Series FF holders vote in that favor.
Pretty nifty stuff, right?
What Types of Companies Can Offer This Type of Stock To Investors?
Corporations and Limited Liability Companies (LLC) are the types of businesses that typically offer these types of stocks. In a corporation, the types of stocks or shares you’ll issue and their classes will be found in the articles of incorporation — specifically in a document called a certificate of designation. In an LLC, that information will be found in the operating agreement.
What Can I Call This Special Class of Stock?
Founders Fund called it Series FF to enhance their branding. If you meet certain criteria and can offer different class of stock, Brinen & Associates can help you do that, too.
The owner of Mary’s Marketing Services, a fictitious company, could create a “Series MM” stock that adopts all, or many of the same rules and stipulations as the Series FF. Heck, if you want to call your company AmalgamatedGarbage.com, and issue “Series Narcissistic Fake Billionaire” shares, go for it!
This is a fine time to implement this idea for a business, especially since we’re living in this glorious age of customization.
It’s difficult to navigate the waters of debt and equity financing. Creating and customizing a stock for your business equally intricate. Thankfully, it’s an area Brinen & Associates specializes in, and if this is an option you’d like to pursue, contact us.