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A step-by-step solution for this table problem.
• Step 1: Find the Key Terms + Assumptions
• Step 2: PPS + Share # for Note (Pre-Money)
• Step 3: Share # + PPS for Safe (Post-Money)
• Step 4: Option Exp.
• Step 5: Share # for Series Seed Preferred https://twitter.com/ChrisHarveyEsq/status/1309585760979361792?s=20
• Step 1: Find the Key Terms + Assumptions
• Step 2: PPS + Share # for Note (Pre-Money)
• Step 3: Share # + PPS for Safe (Post-Money)
• Step 4: Option Exp.
• Step 5: Share # for Series Seed Preferred https://twitter.com/ChrisHarveyEsq/status/1309585760979361792?s=20
Step #1: Key Terms + Assumptions
What are the Conversion Terms of the Note? (see @rlj_law tweet)
Two basic ways to calculate Pre-Money Shares:
a) Issued & Outstanding
b) Fully-Diluted
This cap table problem uses both ways:
• Note = a
• Safe = b https://twitter.com/rlj_law/status/1310059341081440256?s=20
What are the Conversion Terms of the Note? (see @rlj_law tweet)Two basic ways to calculate Pre-Money Shares:
a) Issued & Outstanding
b) Fully-Diluted
This cap table problem uses both ways:
• Note = a
• Safe = b https://twitter.com/rlj_law/status/1310059341081440256?s=20
1a) Issued & Outstanding
The first way is simple: Calculate the total outstanding pre-money shares, including:
• Common Stock Issued
• Options Granted
*BUT excluding Currently Available Options & Expanded Option Pool. "Reserves" are silent here which means they're excluded.
The first way is simple: Calculate the total outstanding pre-money shares, including:
• Common Stock Issued
• Options Granted
*BUT excluding Currently Available Options & Expanded Option Pool. "Reserves" are silent here which means they're excluded.
1b) Fully-Diluted Basis
The second way is more complex: Calculate all securities on a fully-diluted basis (including reserved plan and ungranted options) so that the existing common stockholders will assume the dilutive effects when those options are issued and exercised.
The second way is more complex: Calculate all securities on a fully-diluted basis (including reserved plan and ungranted options) so that the existing common stockholders will assume the dilutive effects when those options are issued and exercised.
Step #2: Calculate the PPS + Share # for the Note (Pre-Money)
• m (PPS) = Valuation Cap (a) / Issued & Outstanding Shares (x)
• n (# Note Shares) = Principal + Interest on Note (d) / m
Calculating:
• m = $4M / 8.5M = $0.470588
• n = $750K / $0.470588 = 1,593,750
• m (PPS) = Valuation Cap (a) / Issued & Outstanding Shares (x)
• n (# Note Shares) = Principal + Interest on Note (d) / m
Calculating:
• m = $4M / 8.5M = $0.470588
• n = $750K / $0.470588 = 1,593,750
Step #3: Solve the Share # + PPS for Safe
This is where things get #Tricky.
Post-Money Safes convert on a fully diluted basis + all other Safes, notes and convertibles ("Company Capitalization"). If stacked, Safes can be dilutive.
🖩 ALL SHARES but the Option Pool Expansion:
This is where things get #Tricky.
Post-Money Safes convert on a fully diluted basis + all other Safes, notes and convertibles ("Company Capitalization"). If stacked, Safes can be dilutive.
🖩 ALL SHARES but the Option Pool Expansion:
Step #3 (cont): Calculating the Share # + PPS for Safe
Purchase Amount ($150K) / Valuation Cap ($2M) = 7.5%
Add 7.5% to the Total # of Pre-Money Shares:
• Total # = 11,593,750 / (1 - 7.5%)
• Cap ($2M) / Total # (12,533,784) = $0.15957 (PPS)
• Safe #=7.5% * Total # = 940,034
Purchase Amount ($150K) / Valuation Cap ($2M) = 7.5%
Add 7.5% to the Total # of Pre-Money Shares:
• Total # = 11,593,750 / (1 - 7.5%)
• Cap ($2M) / Total # (12,533,784) = $0.15957 (PPS)
• Safe #=7.5% * Total # = 940,034
Step 4: Calculate Option Pool Expansion
Two ways to solve it:
1. The "easy way": Circular reference in Excel.
2. The "hard way": F*#&!ng Math.
Option Pool Expansion = [(x * n * u * o * t) / p - (o * t)]
Variables are attached on this neat lil' cheat sheet
= 3,677,928
![Step 4: Calculate Option Pool ExpansionTwo ways to solve it:1. The "easy way": Circular reference in Excel.2. The "hard way": F*#&!ng Math.Option Pool Expansion = [(x * n * u * o * t) / p - (o * t)]Variables are attached on this neat lil' cheat sheet= 3,677,928](https://pbs.twimg.com/media/EjrMBx_U8AEmImT.png "Step 4: Calculate Option Pool ExpansionTwo ways to solve it:1. The \"easy way\": Circular reference in Excel.2. The \"hard way\": F*#&!ng Math.Option Pool Expansion = [(x * n * u * o * t) / p - (o * t)]Variables are attached on this neat lil' cheat sheet= 3,677,928")
Two ways to solve it:
1. The "easy way": Circular reference in Excel.
2. The "hard way": F*#&!ng Math.
Option Pool Expansion = [(x * n * u * o * t) / p - (o * t)]
Variables are attached on this neat lil' cheat sheet
= 3,677,928
Step 5: Calculate PPS & Share # for the Seed Preferred
If you're still with me, I'm impressed!
Final numbers:
• Seed PPS (v) = Pre-Money Valuation / (Pre-Money Shares (x) + Note # (n) + Safe # (u) + Option # (Y) = $0.543784
• Investor # (Z) = $2M / $0.543784 = 3,677,928
If you're still with me, I'm impressed!
Final numbers:
• Seed PPS (v) = Pre-Money Valuation / (Pre-Money Shares (x) + Note # (n) + Safe # (u) + Option # (Y) = $0.543784
• Investor # (Z) = $2M / $0.543784 = 3,677,928
Law of VC #9 explains this in more detail
(cap table URLs to follow) https://lawofvc.substack.com/p/9-episode-the-mutable-laws-of-vc
(cap table URLs to follow) https://lawofvc.substack.com/p/9-episode-the-mutable-laws-of-vc
Cap Table #1 (modified from @VentureHacks):
https://docs.google.com/spreadsheets/d/19mrm8tPDW69VLBY_14YMbzeP741pkSAiL-INCps4-Kw/edit?usp=sharing
Cap Table #2 (h/t to @jbkupperman for the original template): https://docs.google.com/spreadsheets/d/1BPix24rW929n-CBSvD-PQleD06HoXyZqsrAAXvF01Lw
https://docs.google.com/spreadsheets/d/19mrm8tPDW69VLBY_14YMbzeP741pkSAiL-INCps4-Kw/edit?usp=sharing
Cap Table #2 (h/t to @jbkupperman for the original template): https://docs.google.com/spreadsheets/d/1BPix24rW929n-CBSvD-PQleD06HoXyZqsrAAXvF01Lw
