The Next Web

OCTOBER 7, 2013

Cap tables sound intimidating. Every time a startup raises capital, all common shareholders are diluted. All of the estimates displayed above are figures prior to any dilution. As stated earlier, investors will dilute ownership upon nearly every round of financing. Converting percents to cents (and dollars).

Engineer 129

Engineer Dilution Option Pool Vesting 129

VC Adventure

OCTOBER 8, 2012

This is typically reflected on cap tables in a completely separate tab to the spreadsheet that shows the debt total by investor and then some kind of interest calculation. The problem, of course, is that their convert is already a part of their capitalization – even though it’s not reflected on the cap table.

Cap Table 93

Cap Table Dilution Equity Deal Structure 93

Up and Running

JULY 2, 2014

of our company in exchange for the $300K, and my business partner and I each diluted from 50% ownership down to 33.3% ownership and never dilute. When fundraising for a startup, all investors dilute as additional investors join in on the deal. The deal we made with him was he’d get 33.3%

Technical Review 118

Technical Review Angel Investor Due Diligence Dilution 118

Both Sides of the Table

JULY 22, 2010

So taking the same fund raising round and assuming that the VC wants the options including before he or she funds (and before is totally standard) then the math works like this: Assuming a 15% option pool post funding then you need a 20% option pool pre funding (because the pool gets diluted by 25% also when the VC invests their money).

Valuation 405

Valuation Liquidation Preference Pre-Money Valuation Term Sheet 405

Both Sides of the Table

SEPTEMBER 16, 2010

avoid being diluted). And if you’re not busy being crushed (diluted) you might not notice that the people above you in the cap table (e.g. Angel investing has a high risk / reward profile so if you only make 5 angel investments your chances of success are greatly diminished. But it is. So know that going in.

Cap Table 283

Cap Table Angel Investor Liquidation Preference Deal Flow 283

Hunter Walker

JANUARY 2, 2017

The total value of these deals might look higher than when a tech company makes an acquihire but the premium tends to go to retention rather than the cap table (especially since (a) the acquirer might not be seen as an ‘attractive’ place to work and (b) there’s assumption of less equity upside post-acquisition).

Technical Review 116

Technical Review Cap Table Acquisition Startup 116

VC Adventure

OCTOBER 8, 2012

This is typically reflected on cap tables in a completely separate tab to the spreadsheet that shows the debt total by investor and then some kind of interest calculation. The problem, of course, is that their convert is already a part of their capitalization – even though it’s not reflected on the cap table.

Cap Table 48

Cap Table Dilution Equity Deal Structure 48

Hunter Walker

AUGUST 8, 2023

The reality is lots of companies – many of them quite promising – have already undergone, or will be facing, next financings which “clean up” old cap tables. Whatever gets reported is just the tip of the iceberg. Sometimes these are led by outside investors and old ones will just take the impact and walk away.

Portfolio 99

Portfolio Cap Table LP Valuation 99

ithacaVC

SEPTEMBER 4, 2011

Here is the latest edition of Finance Fridays from Brad Feld called “Introducing the Cap Table and CTO” Every startup needs someone to be in charge of the Cap Table. When I was General Counsel at a tech company during the 1999 bubble times, I kept the company’s Cap Table.

Cap Table 49

Cap Table Finance Option Pool Warrant 49

ithacaVC

SEPTEMBER 10, 2012

But here is one that I want to focus on in this post: “Can I ask for undiluted stock (non dilution clause)?” I am not even sure what “undiluted stock” is, but safe to say the person (I will call him Exec X) meant stock that his equity would not be dilutable in terms of ownership. Actually, I got many questions.

Dilution 53

Dilution Employee Cap Table Stock 53

View from Seed

SEPTEMBER 23, 2019

Previous venture firms’ specific involvement on the cap table should be noted here, though. Plus, any other non-standard items here should be called out, too, like non-dilutive grants, as applicable. What not to include is directly stating valuation expectations.

Cap Table 211

Cap Table Seed Stage Valuation Dilution 211

David Teten

JANUARY 19, 2021

That said, Jonathan Bragdon, General Partner, Capacity Capital , points out that Flexible VC terms “twin” well with equity: providing less dilution while still providing investor assistance. . Most Flexible VCs lead rounds and often take 100% of the round to mitigate this risk.

Cofounder 78

Cofounder Technical Review Equity Dividend 78

Hunter Walker

SEPTEMBER 5, 2021

Startup CEOs Should Test Strength of Cap Table Every ~6 Months To Know Where They Stand. I rather see the difference in dilution be used to continue hiring amazing team members going forward than add a few more basis points to my ownership. Go read it and then come back here…. Because it’s better for the company overall IMO.

Cap Table 95

Cap Table Seed Stage Syndicate Syndication 95

Hunter Walker

MARCH 14, 2019

All the disruption can be pretty jarring to an entrepreneur, especially in situations where the exiting partner represents the top line on your cap table. You’ll often need the support – both structurally and symbolically – of some other investors on the cap table to make the case for some of the ideas below to work.

Cap Table 95

Cap Table Dilution Silicon Valley Portfolio 95

VC Cafe

FEBRUARY 9, 2011

Know your industry’s standards and keep a controlled cap table. This specific agreement didn’t state whether the 5% was on a fully diluted basis or not. No matter how experienced or well connected an outsider claims to be, ask yourself questions about the other party’s intent.

Technical Review 90

Technical Review Cap Table Due Diligence Non-Compete 90

Both Sides of the Table

JULY 25, 2011

Founders don’t often think about “primary&# stock vs, “fully diluted&# stock in terms of voting rights. To this day I’m still surprised how few CEOs really understand the differences between 2x liquidation preference and a liquidation preference with a 2x cap. Or what “flat spots&# on a cap table are.

Liquidation Preference 304

Liquidation Preference Term Sheet Cap Table Participating Preferred 304

David Teten

AUGUST 19, 2019

Benefits: Non-dilutive, flexible credit offerings that fit SMB or enterprise SaaS. For RBI, return caps of 1.2x-1.8x Limited amount of existing debt and a clean cap table”. At least 12 months of customer history, generally 20+ enterprise customers or 200+ SMB customers. Capital need of up to $1.5M over next 12 months.

Revenue 60

Revenue Technical Review Software Review Equity 60

The Next Web

OCTOBER 21, 2013

While there are no hard and fast rules, when we make a Series A investment we expect to own around 20% of the company on a fully-diluted basis. This problem is all the more thorny when the angel investors have the right to participate in future rounds and intend to do so in order to protect against dilution. Alarm bells.

Cap Table 128

Cap Table Option Pool Angel Investor Entrepreneur 128

Both Sides of the Table

OCTOBER 7, 2014

My speculation is that entrepreneurs had more options and wanted to take less dilution so the old $5 million for 33%-40% of your company no longer made sense and on the VC side it made no sense to pay $20 million pre ($25 million post, which implies the VC gets 20% of the company = 5/25). Why the latter? My personal definition?

Cap Table 399

Cap Table Silicon Valley Term Sheet Finance 399

Gust

OCTOBER 8, 2014

My speculation is that entrepreneurs had more options and wanted to take less dilution so the old $5 million for 33%-40% of your company no longer made sense and on the VC side it made no sense to pay $20 million pre ($25 million post, which implies the VC gets 20% of the company = 5/25). Invested Interests cap table venture capital'

Cap Table 136

Cap Table Silicon Valley Term Sheet Non-Compete 136

keen.io

FEBRUARY 5, 2013

If the company is pre-funding or only has a small friends-and-family seed round, then the numbers should go up from there, based on expected dilution and greater risk.” Assumption: The pre-dilution amount prior to Series A should be approximately double the amount in this post-Series-A chart. Result: A fair offer would be between.8

Salary 50

Salary Equity Startup San Francisco 50

Rob Go

AUGUST 29, 2016

The main reason for this, I think, is that there has been such a proliferation of convertible notes, SAFE’s, and other instruments that it becomes tough for a new investor to feel confident that they fully understand a company’s cap table prior to an investment. This creates a dis-incentive to raise more than you intended.

Post-Money Valuation 52

Post-Money Valuation Valuation Cap Table Term Sheet 52

Haystack

AUGUST 18, 2019

You lose influence as larger investors come into the cap table and start throwing their weight around. Back in 2017, Fred Wilson noted the strategic importance of the seed stage , writing: Seed is really hard. You lose way more than you win. You wait the longest for liquidity. It is where most people start out.

Seed Stage 108

Seed Stage Cap Table Early Stage Malaysia 108

Bryce Dot VC

DECEMBER 22, 2016

We don’t know how many rounds this company has raised, how many other VCs are on the cap table, nor how much the founders own. 5%-10% range is much more likely after the initial round of funding and dilutes rather quickly in successive rounds as reserves for pro rata vary wildly by firm). Through our work on Indie.vc

Founder 40

Founder Cap Table Dilution Valuation 40

Feld Thoughts

AUGUST 28, 2015

I didn’t do spreadsheet math to get there – I just figured that the economics of the round ended up with the seed round getting about 33% (the max I think most seed rounds should end up getting) and then take meaningful dilution from there. The CEO committed to doing something here, which I told him I respected.

Cap Table 70

Cap Table Seed Stage Angel Groups Dilution 70

Hippoland

APRIL 10, 2016

Secondly, even if you are ok with either arrangement you have proposed, it is a major red flag to investors to have much of the cap table locked up with dead-beat co-founders / professors / advisors who are not working day-to-day on the company.

Cofounder 48

Cofounder Cap Table Equity Vesting 48

ithacaVC

FEBRUARY 1, 2018

It is highly typical for a startup to have small investors on its cap table. In this situation, the FFAs are diluted from an ownership percentage, but enhanced economically. Founders often raise money from friends and family and other angels. That is all well and good… and 100% normal.

Preemptive Right 45

Preemptive Right Cap Table Valuation Dilution 45

Austin Startup

DECEMBER 7, 2017

There are two problems with early stage investing: telling how much a company is worth when truthfully, it is still worthless; and helping early-stage companies protect themselves from over dilution when they are, effectively, worthless. The note converts at a maximum valuation (cap) of $4.5mm. Two sides of the same intractable coin.

Covenant 48

Covenant Cap Table Early Stage SBA 48

Bryce Dot VC

FEBRUARY 6, 2017

Founders can trade the fundraising treadmill for the freedom, control and ownership that comes with managing your cap table closely. And it rewards that early, and often painful, focus on revenue and sustainability with less dilution and more optionality. Reliance on revenue keeps them close to their customers.

Cap Table 40

Cap Table Burn Rate Dilution Bootstrapping 40

Both Sides of the Table

FEBRUARY 22, 2011

I understand the appeal of having many VC firms on your cap table. You may feel as I did in 1999 that the more smart people around the table the more intros you’ll have, the more sage advice you’ll receive and the more impressive you’ll seem to outsiders. The Perils of Many. There – the secret is out.

Dilution 314

Dilution Cap Table Due Diligence Option Pool 314

ithacaVC

APRIL 5, 2011

I am a huge fan of simple cap tables. A cap table is a written record (in Excel, for example) of who owns stock in your company. It should also provide a combined summary so that it is easy to see who owns what % of the company on a fully diluted and converted basis. I am curious to see how it works out.

Common Stock 45

Common Stock Stock Cap Table Preferred Stock 45

Feld Thoughts

JULY 14, 2015

A company raises $1m of seed money from angels in a convertible note with a $6m cap. Assuming equity is raised at or above that cap, the total dilution, before the new money, is 16.6% (equivalent to an equity financing of $1m at a $6m post money valuation. Here’s the scenario. It’s not pretty, but it happens.

Recapitalization 70

Recapitalization Pre-Money Valuation Post-Money Valuation Angel Investor 70

venturehacks.com

MARCH 21, 2008

If your company hasn’t raised a Series A, increase the advisor’s equity by roughly 30%-50% to account for dilution from seed investors, Series A investors, option pools, swimming pools, and the like. All our products Pitching Hacks , Cap Table , and Co-founder Interview. Learn more. Buy it here.

Advisory Board 44

Advisory Board Cap Table Vesting Equity 44

Scott Edward Walker

OCTOBER 28, 2014

Because if there is like a 40% dilution in an angel round, I’ve actually said to the founder, ‘do you realize you have already doomed yourself?’” –Ron Conway (at 25:12). We’ve seen a series of interesting companies in the last five years where we simply won’t bid because the cap table is already destroyed.”

Cap Table 67

Cap Table Cofounder Silicon Valley Venture Capital 67

David Teten

AUGUST 21, 2019

Less or no dilution. Lori Smith of White and Williams observes, “The traditional VC is likely going to see these investors in the cap table as a negative. From the founders’ point of view, the advantages of the RBI model are: Greater control over the company. RBI investors usually don’t take equity. Optionality.

Revenue 60

Revenue Liquidation Preference Equity Cofounder 60

Ben's Blog

APRIL 1, 2011

I remember when I first became CEO, an investor asked me to send him the “cap table.” Raise money in a highly dilutive way. This means that you will face a broad set of things that you don’t know how to do that require skills that you don’t have. Radically reduce the size of the company or 2. Sell the company or 3.

Management 78

Management Cap Table Balance Sheet Bankruptcy 78

David Teten

OCTOBER 1, 2015

At the same time, a direct equity investment (one where the dev shop acquires a share in the company immediately) puts the founders in a potentially uneasy position of having to dilute their company before a product is built. A key goal of ours is to “become obsolete” by Series A, and that makes us different than a lot of other shops.

Software Developers 60

Software Developers Software Development Software Review Technical Cofounder 60