incorporation, cap tables and other startup legal issues
TRANSCRIPT
© Shoobx, Inc. All Rights Reserved. Confidential and Proprietary. Do not duplicate or distribute.
Incorporation Basics, Seed Capital & Your Cap Table
Presented by:
Stanford Venture Studio
1. Incorporation and Founder Shares
2. Option Pool (Pre and Post-Series A)
3. Seed Stage Financing
4. Series A and some Math
5. Some Examples
Incorporation Basics, Seed Capital & Your Cap Table
Your Cap Table Timeline
Founder Shares
Option Pool
Seed Financin
g
Series A Financin
g
Series B and
beyond
Incorporation – A Brief Note• DE C-corp• Authorized Shares (vs. Issued Shares) and Par Value (lots of zeros!)• Do it right and avoid unnecessary fees
Founder Shares• Allocating Shares among Founders – Factors to Consider
1. What’s Fair? a. Idea guy/gal vs. the Doer b. Full-time gig vs. the Dabbler
2. Motivation or Distraction?3. How will investors/others perceive?
• YOUR CAP TABLE IS BORN!
• Founder Vesting – Do it now (before funding)!
• Founders Agreement – Do it!
Incorporation & Founder Shares
Granting Equity to Employees, Board members, Consultants, Advisors etc.• Option Plan + ISOs, Non-Quals and Restricted Stock• Early-exercise Options (Pros/Cons and Cap Table)
Another thing to track on your Cap Table (vested/unvested)!
Pre-Series A Pool – 5%-ish• This starting point will set baseline for what VCs ask for in Series A• Balance need to incentivize pre-A team and dilution of Founder shares
Post-Series A – 10 to 20% (unallocated)• Investors benefit from larger pool as it effectively lowers your pre-money• A hiring plan can help you negotiate a lower pool
“The Option Pool Shuffle” – Venture Hacks
Option Pool
Seed StageSeed Financing Options and Cap Table - +/- 20% dilutionSome History and Goals – (1) Optimize cash/dilution, (2) Fast and cheap and (3) Reduce complexity for future rounds
Convertible Bridge Note – Traditional Approach• Debt to be converted on an equity financing• Valuation Cap and Discount on Conversion• Avoids pricing company – Investors comfortable
Series Seed (Ted Wang - AngelList) - OS• Chopped down version of Series A• Founder dilution is immediately known
SAFE (Y Combinator) – KISS (500Startups) - OS• Intended to replace Bridge Note• KISS emerges in response to SAFE as too pro-Issuer• Reflected on Cap Table like an Option or Warrant
Cap Table and Series A diligence• Accurate, accurate, accurate (Did I say “ACCURATE”?)• What to show and when?
Cap Table and Role of your Attorney• Traditionally• Today and tomorrow
Cap Table and Diligence
Want to learn more?
• Go to www.shoobx.com
Want to get started on Shoobx?
• Matt Rowe - [email protected]• [email protected]
Questions?