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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 - mrowe@shoobx.com• support@shoobx.com

Questions?