Equity Crowdfunding Blog

Author Archives: Judd Hollas

Qualified Small Business Stock (QSBS) Section 1202 Exclusion

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entrepreneur and investor analyze qualified small business stock and the section 1202 exclusion

Qualified Small Business Stock (QSBS) Section 1202 Exclusion

If you’ve ever sat down on a Sunday afternoon to read the tax code, you’re probably familiar with section 1202. If you haven’t, you’ll want to keep reading for a brief overview of how this mere footnote can leave a big footprint on the tax burdens of small business investors. 

Section 1202 is the partial exclusion for gains from qualified small business stock. 

What is Qualified Small Business Stock?

Qualified Small Business Stock (QSBS), sometimes referred to as “section 1202 stock,” is an internal revenue code (IRC) exclusion that can eliminate capital gains tax for long-term investors and other shareholders of qualified small businesses. 

This is a preview of Qualified Small Business Stock (QSBS) Section 1202 Exclusion. Read the full post (598 words, 3 images, estimated 2:24 mins reading time)

Cost of Equity Formula Using DDM, CAPM, and Private Companies

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From a company’s perspective, there are two methods for raising capital: debt and equity. Debt is usually less expensive than equity because the debtholder’s returns are fixed and finite. You can also deduct interest expenses from your tax burden, which is an advantage of using debt financing. 

But there are many reasons a company would want to raise equity capital and therefore must understand their cost of equity. Investors will also likely conduct a similar analysis for different reasons, but it’s good to align cost of equity expectations. 

This is a preview of Cost of Equity Formula Using DDM, CAPM, and Private Companies. Read the full post (1185 words, 4 images, estimated 4:44 mins reading time)

Business Valuation Multiples by Industry [Data Study]

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investors discuss business valuation multiples

Today’s entrepreneurial ecosystem is experimental. It’s experimental because 500,000 companies are started every year with a hypothesis for solving a problem and, in that same year, an equal number of businesses fail. 

From a macro perspective, these innovative companies test the market and either have groundbreaking success or enlightening failure. Those that fail send a powerful signal to the market that helps evolve our collective thinking about business and investing. Another powerful signal is the valuation multiple paid to invest in these companies — how is the market pricing innovation? 

This is a preview of Business Valuation Multiples by Industry [Data Study]. Read the full post (1260 words, 7 images, estimated 5:02 mins reading time)

High-Risk Investments: Types of Risk, Reward Ratio, and Examples

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female investor considers high-risk investments on mobile brokerage

Warren Buffett, the most famous and possibly most risk-averse investor of all time, has distilled his principles for investing down to two rules:

  1. Don’t lose money.
  2. Don’t forget the first rule.

A high-risk investment is one that has a significant probability of losing some or all of its value. Every investment has some level of risk, in other words, every position has a probability of losing money, but safe investments have extremely low probabilities of loss.

This is a preview of High-Risk Investments: Types of Risk, Reward Ratio, and Examples. Read the full post (1578 words, 3 images, estimated 6:19 mins reading time)

What is Liquidation Preference and Who Benefits Most?

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investor and entrepreneur negotiate liquidation preference

Whether you’re an entrepreneur, investor, or even an employee with some stock options in a startup, the importance of understanding liquidation preference cannot be overstated. 

Consider the purse of prize money at a gaming event: first place receives the lion’s share of the winnings, others on the podium usually get a much smaller slice, and the vast majority of contestants receive nothing. This is a great analogy for thinking about liquidation preference. 

In this article, we introduce one of the most important clauses that is included in an angel, venture, private equity, or other investment term sheet. 

This is a preview of What is Liquidation Preference and Who Benefits Most?. Read the full post (1111 words, 3 images, estimated 4:27 mins reading time)

A Guide to Rollovers as Business Startups (ROBS)

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woman considering the ROBS program for 401(k) rollovers for business startups

If you’re looking for startup or operating capital for a business, you might exhaust all debt and equity financing options before discovering that Rollovers as Business Startups (ROBS) could have been a great option from the start. 

Accessing the capital needed from your own accounts can be a great way to avoid the risks of assuming debt, but it can also come with its own set of risks. If you are a young entrepreneur without any money saved in a 401(k), ROBS will not be a viable option to you and you should consider alternatives to raising capital, such as equity crowdfunding. 

This is a preview of A Guide to Rollovers as Business Startups (ROBS). Read the full post (1523 words, 3 images, estimated 6:06 mins reading time)

Debt vs Equity Financing: Which is Right For Your Business?

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founders discuss debt vs equity when deciding how to raise startup funding

Founders and operators face many difficult and important decisions in their line of work; and where to source financing for operations and growth is one of the most important.

Debt and equity are high-level classifiers of the various funding sources but each has a number of options, from the traditional routes like banks and financial institutions to the modern day methods like crowdfunding and peer-to-peer lending.

In this article, we compare and contrast debt versus equity including the various types, advantages, disadvantages, and examples of each. 

This is a preview of Debt vs Equity Financing: Which is Right For Your Business?. Read the full post (2105 words, 7 images, estimated 8:25 mins reading time)

What are Alternative Investments and Why Consider Them?

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investor researches alternative investments

There’s an old saying that “no one ever got fired for buying IBM.” Equivalent job security in the financial advisory industry has been built on the consistent recommendation for a portfolio allocated between stocks and bonds. 

Is this still good and relevant advice for everyone? Are there any deviations or alternatives to this investing strategy? If you are interested in exploring alternative strategies and opportunities for your investments to produce growth, income, security, and more, this article is for you.

This is a preview of What are Alternative Investments and Why Consider Them?. Read the full post (1511 words, 4 images, estimated 6:03 mins reading time)

Venture Capital Trends For a Well-Funded Future

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venture capitalist analyzing investment trends

Investing in startups is essentially the art of trend spotting. 

Venture capitalists place bets on the distant future – like decades into the future. Most VCs consider themselves contrarian thinkers and according to famed Benchmark VC and entrepreneur Andy Rachleff, in order to be successful you must be non-consensus and right.

In reality, there appears to be some consensus among investors, which shows up in the form of venture capital trends. In the last decade (2010s), for example, mobile app-based services like Uber, Lyft, DoorDash, Robinhood, and more were certainly a trend in both business model and venture capital investments. 

This is a preview of Venture Capital Trends For a Well-Funded Future. Read the full post (1204 words, 4 images, estimated 4:49 mins reading time)

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