Building a Cap Table // David Weekly // blackbox connect

2,372 views

Published on

David Weekly's presentation from blackbox connect // Nov 2011.

http://blackbox.vc

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,372
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • \n
  • Building a Cap Table // David Weekly // blackbox connect

    1. 1. BUILDING A CAP TABLE an adjunct to An Introduction to Stocks & Options (c) 2011 David E. Weekly, Creative Commons Non-Commercial Attribution Sharealike
    2. 2. FoundingAlice & Bob decide to start a company on June 1, 2006.They each give themselves 2,000,000 options vestingover four years.They both elect 83(b) at $0.001/share (paying in $2000each).They raise $10k from one friend and $5k from another,who simply purchase Common stock. They value thecompany at $135k ($0.03/share)
    3. 3. August 2, 2006 83(b) Election means Restricted Stock FakeCorp is vesting into Common Stock. Capitalization Table Aug 2, 2006 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,000,000 Founder & CEO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Founder & CTO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000 Total Shares 4,500,000 Outstanding They’re only a few months into their 4 year vesting...
    4. 4. August 2, 2006 83(b) Election means Restricted Stock FakeCorp is vesting into Common Stock. Capitalization Table Aug 2, 2006 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,000,000 Founder & CEO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Founder & CTO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000 Total Shares 4,500,000 Outstanding They’re only a few months into their 4 year vesting...
    5. 5. August 2, 2006 83(b) Election means Restricted Stock FakeCorp is vesting into Common Stock. Capitalization Table Aug 2, 2006 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,000,000 Founder & CEO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Founder & CTO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000 Total Shares 4,500,000 Outstanding They’re only a few months into their 4 year vesting...
    6. 6. August 2, 2006 83(b) Election means Restricted Stock FakeCorp is vesting into Common Stock. Capitalization Table Aug 2, 2006 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,000,000 Founder & CEO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Founder & CTO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000 Total Shares 4,500,000 Outstanding They’re only a few months into their 4 year vesting...
    7. 7. August 2, 2006 83(b) Election means Restricted Stock FakeCorp is vesting into Common Stock. Capitalization Table Aug 2, 2006 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,000,000 Founder & CEO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Founder & CTO 2,000,000 Restricted $0.001 Jun 1, 2006 84,932 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000 Total Shares 4,500,000 Outstanding They’re only a few months into their 4 year vesting...
    8. 8. Early DaysOver the next two years, they recruit three people to comejoin their team, allocating options by likely impact level. (Early Hire 2 gets 150,000 options.)To keep things simple, they keep the common price at$0.03/share.In April 2008, they raise a $250k angel round with a 20%discount.
    9. 9. April 2, 2008 FakeCorp Your new VP is clever and Capitalization also did an 83(b) exercise, even though Table it cost her $10,500! Apr 2, 2008 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,700,000 Founder & CEO 2,000,000 Restricted$0.001 Jun 1, 2006 919,178 Founder & CTO 2,000,000 Restricted$0.001 Jun 1, 2006 919,178 Early Hire 1 200,000 option $0.03 Nov 1, 2007 20,959 Early Hire 2 150,000 option $0.03 Dec 1, 2007 12,637 Early VP Hire 350,000 Restricted $0.03 Mar 1, 2008 7,671 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000The angel investors now own Lead Angel DEBT $150,000debt but don’t have any equity Following Angel DEBT $50,000 Following Angel DEBT $50,000 ownership yet. Total Shares 5,200,000 Outstanding
    10. 10. April 2, 2008 FakeCorp Your new VP is clever and Capitalization also did an 83(b) exercise, even though Table it cost her $10,500! Apr 2, 2008 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,700,000 Founder & CEO 2,000,000 Restricted$0.001 Jun 1, 2006 919,178 Founder & CTO 2,000,000 Restricted$0.001 Jun 1, 2006 919,178 Early Hire 1 200,000 option $0.03 Nov 1, 2007 20,959 Early Hire 2 150,000 option $0.03 Dec 1, 2007 12,637 Early VP Hire 350,000 Restricted $0.03 Mar 1, 2008 7,671 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000The angel investors now own Lead Angel DEBT $150,000debt but don’t have any equity Following Angel DEBT $50,000 Following Angel DEBT $50,000 ownership yet. Total Shares 5,200,000 Outstanding
    11. 11. April 2, 2008 FakeCorp Your new VP is clever and Capitalization also did an 83(b) exercise, even though Table it cost her $10,500! Apr 2, 2008 Common Shares shares type $/sh vesting start shares vested Employee Grants 4,700,000 Founder & CEO 2,000,000 Restricted$0.001 Jun 1, 2006 919,178 Founder & CTO 2,000,000 Restricted$0.001 Jun 1, 2006 919,178 Early Hire 1 200,000 option $0.03 Nov 1, 2007 20,959 Early Hire 2 150,000 option $0.03 Dec 1, 2007 12,637 Early VP Hire 350,000 Restricted $0.03 Mar 1, 2008 7,671 Preferred Shares shares type $/sh $ invested Investors 500,000 Friend 1 333,333 common $0.03 $10,000 Friend 2 166,667 common $0.03 $5,000The angel investors now own Lead Angel DEBT $150,000debt but don’t have any equity Following Angel DEBT $50,000 Following Angel DEBT $50,000 ownership yet. Total Shares 5,200,000 Outstanding
    12. 12. Series AFour more employees are hired with full salaries andconsequently less equity.A VC firm offers $1.1m for ~22% of the company($0.55/share)and 1x participating preferred. A second firm follows in theround with $500k.800,000 shares are put in the options pool.The convertible debt converts to Series A at the agreed-on 20%discount.After the financing, a 409(a) valuation prices Common at $0.09.
    13. 13. FakeCorp Capitalization Table Oct 2, 2008Common Shares shares type strike price vesting start vesting end days vested % vested # shares vested FD Ownership Employee Grants 4,845,000 Founder & CEO 2,000,000 Restricted $0.001 Jun 1, 2006 Jun 1, 2010 854 58% 1169863 20.8% Founder & CTO 2,000,000 Restricted $0.001 Jun 1, 2006 Jun 1, 2010 854 58% 1169863 20.8% Early Hire 1 200,000 option $0.03 Nov 1, 2007 Nov 1, 2011 336 23% 46027 2.1% Early Hire 2 150,000 option $0.03 Dec 1, 2007 Dec 1, 2011 306 21% 31438 1.6% Early VP Hire 350,000 Restricted $0.03 Mar 1, 2008 Mar 1, 2012 215 15% 51541 3.6% Post Convertible Hire 1 50,000 option $0.03 Jun 1, 2008 Jun 1, 2012 123 8% 4212 0.5% Post Convertible Hire 2 30,000 option $0.03 Aug 1, 2008 Aug 1, 2012 62 4% 1274 0.3% Post Convertible Hire 3 40,000 option $0.03 Sep 1, 2008 Sep 1, 2012 31 2% 849 0.4% Post Convertible Hire 4 25,000 option $0.03 Sep 15, 2008 Sep 15, 2012 17 1% 291 0.3% Options Pool 800,000 unallocatedPreferred Shares shares owned type $/share paid cash invested date invested discount FD ownership Investors 3977273 Friend 1 333333 common $0.03 $10,000 Aug 1, 2006 3.46% Friend 2 166667 common $0.03 $5,000 Aug 1, 2006 1.73% Lead Angel 340909 A (converted) $0.44 $150,000 Apr 1, 2008 20% 3.54% Following Angel 113636 A (converted) $0.44 $50,000 Apr 1, 2008 20% 1.18% Following Angel 113636 A (converted) $0.44 $50,000 Apr 1, 2008 20% 1.18% Lead VC Firm 2,000,000 A $0.55 $1,100,000 Oct 1, 2008 20.79% Following Firm 909091 A $0.55 $500,000 Oct 1, 2008 9.45%Total Shares Outstanding 9622273
    14. 14. Acquisition!The company hires seven more employees.After two further years, a company offers to buy FakeCorpfor $10m.So how much does Early Hire 2 get?
    15. 15. LiquidityFirst: the VCs get their 1x liquidity preference then theirshares convert to common.Assume no acceleration for employees.$0.95/share to common.Mr. “Early Hire 2” has vested 2/3 of his 150,000 options at$0.03/share.EH2 gets ~$95k before taxes, ~$58k after.
    16. 16. FakeCorp Capitalization Table Aug 1, 2010Common Shares shares type strike price vesting start vesting end days vested % vested # shares vested FD Ownership pre-tax liq$ after ca+fed Employee Grants 4,953,000 Founder & CEO 2,000,000 Restricted $0.001 Jun 1, 2006 Jun 1, 2010 1,460 100% 2000000 20.7% $1,906,913 $1,444,486 Founder & CTO 2,000,000 Restricted $0.001 Jun 1, 2006 Jun 1, 2010 1,460 100% 2000000 20.7% $1,906,913 $1,444,486 Early Hire 1 200,000 option $0.03 Nov 1, 2007 Nov 1, 2011 1,004 69% 137534 2.1% $131,133 $79,663 Early Hire 2 150,000 option $0.03 Dec 1, 2007 Dec 1, 2011 974 67% 100068 1.6% $95,411 $57,962 Early VP Hire 350,000 Restricted $0.03 Mar 1, 2008 Mar 1, 2012 883 60% 211678 3.6% $201,826 $152,883 Post Convertible Hire 1 50,000 option $0.03 Jun 1, 2008 Jun 1, 2012 791 54% 27089 0.5% $25,828 $15,691 Post Convertible Hire 2 30,000 option $0.03 Aug 1, 2008 Aug 1, 2012 730 50% 15000 0.3% $14,302 $8,688 Post Convertible Hire 3 40,000 option $0.03 Sep 1, 2008 Sep 1, 2012 699 48% 19151 0.4% $18,259 $11,093 Post Convertible Hire 4 25,000 option $0.03 Sep 15, 2008 Sep 15, 2012 685 47% 11729 0.3% $11,184 $6,794 Post Series A Hire 15,000 option $0.09 Nov 1, 2008 Nov 1, 2012 638 44% 6555 0.2% $6,250 $3,797 Post Series A Hire 20,000 option $0.09 Jan 1, 2009 Jan 1, 2013 577 40% 7904 0.2% $7,536 $4,578 Post Series A Hire 8,000 option $0.09 Feb 1, 2009 Feb 1, 2013 546 37% 2992 0.1% $2,853 $1,733 Post Series A Hire 30,000 option $0.09 Jun 1, 2009 Jun 1, 2013 426 29% 8753 0.3% $8,346 $5,070 Post Series A Hire 12,000 option $0.09 Aug 1, 2009 Aug 1, 2013 365 25% 3000 0.1% $2,860 $1,738 Post Series A Hire 15,000 option $0.09 Feb 1, 2010 Feb 1, 2014 181 12% 1860 0.2% $1,773 $1,077 Post Series A Hire 8,000 option $0.09 Jul 1, 2010 Jul 1, 2014 31 2% 170 0.1% $162 $98 Options Pool 692,000 unallocatedPreferred Shares shares owned type $/share paid cash invested date invested FD ownership cash returned Investors 3994365 Friend 1 333333 common $0.03 $10,000 Aug 1, 2006 3.46% $317,819 Friend 2 166667 common $0.03 $5,000 Aug 1, 2006 1.73% $158,909 Lead Angel 351164 A (converted) $0.53 $150,000 Apr 1, 2008 3.64% $484,820 Following Angel 117055 A (converted) $0.54 $50,000 Apr 1, 2008 1.21% $161,607 Following Angel 117055 A (converted) $0.54 $50,000 Apr 1, 2008 1.21% $161,607 Lead VC Firm 2,000,000 A $0.55 $1,100,000 Oct 1, 2008 20.75% $3,006,913 Following Firm 909091 A $0.55 $500,000 Oct 1, 2008 9.43% $1,366,778Total Shares Outstanding 9639365Total Common Shares Held 8547848Offer Price $10,000,000After liquidity preferences $8,150,000$/sh to Common $0.95
    17. 17. NotesThe two founders & early VP all forward-exercised for long-term (15%) capital gains.The early investors made 30x back!The angels made >3x back.The VCs made almost 3x back.

    ×