Finance Friday’s gets off the ground with today’s post by introducing you to an imaginary startup, the entrepreneurs that we’ll being following throughout the series, and their first challenges: splitting up the founders’ equity and addressing the case where one of the founders provides the initial seed capital for the business.

Venture capitalist Brad Feld counts four different standardized seed financing documents floating around the industry (click through for links to each) and would like to see that consolidate to one truly standardize set. Thus, he has decided to try to get a handful of lawyers in a room and try to come out with one set of documents. Who knows if he will succeed but bravo for the effort.

Sophisticated VCs are used to having angel investors as early investors in your company. Your life will be made easier if you treat the angel investment as a real investment and document it legally as such.

Brad Feld postulates a different way to view the Pareto principle.

Editor's Note: you'll probably want to read the prior and external posts he mentions to get the full benefit of this entry.

VC Brad Feld tries to explain the notion of participating preferred (a maligned and typically hotly negotiated issue in many venture capital investments), how it works, and its financial and emotional impact on a deal.

"Yesterday, I received an interview request for an Inc. Magazine article concerning angel investing. The article is being driven by a recent survey by George Washington University that found 58% of venture capitalist respondents said that angel involvement 'sometimes' or 'mostly' makes a company unattractive.

...During the interview, I was asked three specific questions. The questions and my answers follow"

VC Brad Feld answers the following question:

"At my company, we're looking at recapitalizing from 3.5 million shares to 35 million (and contemplating 350 million). The reason is pretty straightforward (although we might be way off base here): we want to create "more shares" so that as we roll out our stock option plan there is some enhanced psychological value in "getting more shares," for employees. Although the value once you do the math is the same, I personally believe that people would rather get 5,000 shares than 5 shares, regardless of the monetary value. So, I asked my attorney what his recommendation is, but I'd love a second opinion. Do we stay at 3.5m, do we go to 35m, do we go to 350m?"

VC Brad Feld offers a set of simple rules for board member compensation in young private companies.