Slides from the Venture Capital Bootcamp event hosted by DFJ Gotham Ventures and Wilson Sonsini Goodrich & Rosati at Columbia University on June 3, 2009. A video of the 3 hour event is available at
Slides from the Venture Capital Bootcamp event hosted by DFJ Gotham Ventures and Wilson Sonsini Goodrich & Rosati at Columbia University on June 3, 2009. A video of the 3 hour event is available at www.dfjgotham.com.
Answer First: Start with an Investment Overview Slide
Product overview & pain point
Barriers to entry
Achievements to date
Capital needs & use of capital
Based in New York Seeking to revolutionize… Customers lose $X per year $X billion addressable market Unique tech = better service Strong network effect barrier Live & generating revenue Projections: $XXXM in X years Seek: $X-XM for new market Thought leaders, 3 rd startup Detailed strategy
A very general rule of thumb for a “mid-stage” technology start-up (i.e., post-Series A)
The median range for option pools is around 15-25% for early stage companies, depending on their headcount requirements.
Position No. of Ees % of Capital Aggregate Equity CEO (1): 5 - 10% 7% CFO (1): 1 - 2% 1% VPs (2): 1 - 3% 8% Dir - level (6): < 1/2% 3% Others (?): < 1/4% 6% Total 25%
Startup Company Valuation Model Example – Incorporation
Founders A and B each purchase 2,000,000 shares of common stock at a purchase price of $0.001 per share
Person # Shares % of Shares Value A 2,000,000 50% $2,000 B 2,000,000 50% $2,000 Total 4,000,000 100% $4,000
Startup Company Valuation Model Example – Establishment of Option Plan
In order to attract employees, the company establishes an option plan and reserves 1,000,000 shares for issuance under the plan
Person # Shares % of Shares Value A 2,000,000 40% $2,000 B 2,000,000 40% $2,000 Option plan 1,000,000 20% $1,000 Total 5,000,000 100% $5,000
Startup Company Valuation Model Example – Initial Financing Round
The company completes a $4,000,000 venture capital financing round of Series A Preferred Stock at a purchase price of $1.00 per share, representing a $6,000,000 pre-money valuation. Option pool is increased to reflect 20% of the fully diluted capitalization.
Person # Shares % of Shares Value A 2,000,000 20% $2,000,000 B 2,000,000 20% $2,000,000 Option plan 2,000,000 20% $2,000,000 Series A 4,000,000 40% $4,000,000 Total 10,000,000 100% $10,000,000
Startup Company Valuation Model Example – Series B Financing Round
The company completes a $10,000,000 Series B financing at a $30,000,000 pre-money valuation, at a purchase price of $2.75 per share. The option pool is set at 20% post financing.
Person # Shares % of Shares Value A 2,000,000 13.75% $5,500,000 B 2,000,000 13.75% $5,500,000 Option plan 2,909,090 20% $8,000,000 Series A 4,000,000 27.5% $11,000,000 Series B 3,636,363 25% $10,000,000 Total 14,545,454 100% $40,000,000
Typical Dilution Metrics Financing stage Amount Raised Dilution Seed – develop beta product, develop plan $50k - $1m 15-30% A – complete initial product, build initial team $1m-$5m 40-60% B – bring product to market, complete team $5m-$15m 25-35% C – expand sales and marketing, working capital for liquidity event $10m-$25m <20%
Common stock is generally used for compensatory purposes (i.e., as a form of payment to employees, board members, consultants, advisors and other service providers) and issued to founders at incorporation
Preferred stock is generally used for investment purposes and has many more rights, preferences and privileges than common stock
Common stock is typically “priced” at a lower price than preferred stock (i.e., for option granting purposes)
Price based antidilution upon a “down round” financing
Weighted average protection: Conversion price is adjusted based on a formula that considers the number of new shares being issued compared to the shares outstanding and the price at which the new shares are issued
Full ratchet protection: Conversion price is adjusted so that the price per share is reset to the price per share in the new financing, regardless of the number of shares issued and the price at which they are issued.
Provide for appropriate carveouts to antidilution protection (i.e., for option issuances, strategic warrants, etc.)