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

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. Founding
Alice & Bob decide to start a company on June 1, 2006.
They each give themselves 2,000,000 options vesting
over four years.
They both elect 83(b) at $0.001/share (paying in $2000
each).
They raise $10k from one friend and $5k from another,
who simply purchase Common stock. They value the
company at $135k ($0.03/share)

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. 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. 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. 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. 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. Early Days
Over the next two years, they recruit three people to come
join 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. 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 $5,000
The angel investors now own Lead Angel DEBT $150,000
debt 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. 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 $5,000
The angel investors now own Lead Angel DEBT $150,000
debt 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. 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 $5,000
The angel investors now own Lead Angel DEBT $150,000
debt 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. Series A
Four more employees are hired with full salaries and
consequently 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 the
round 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. FakeCorp
Capitalization Table
Oct 2, 2008
Common 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 unallocated
Preferred 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. Acquisition!
The company hires seven more employees.
After two further years, a company offers to buy FakeCorp
for $10m.
So how much does Early Hire 2 get?

15. Liquidity
First: the VCs get their 1x liquidity preference then their
shares 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. FakeCorp
Capitalization
Table
Aug 1, 2010
Common 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 unallocated
Preferred 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% $1,366,778
Total Shares Outstanding 9639365
Total Common Shares Held 8547848
Offer Price $10,000,000
After liquidity preferences $8,150,000
$/sh to Common $0.95

17. Notes
The 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.