Incorporation, Cap Tables and other Startup Legal Issues
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Incorporation, Cap Tables and other Startup Legal Issues
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Incorporation, Cap Tables and other Startup Legal Issues
- 1. © 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
- 2. 1. Incorporation and Founder Shares 1. Option Pool (Pre and Post-Series A) 1. Seed Stage Financing 1. Series A and some Math 1. Some Examples Incorporation Basics, Seed Capital & Your Cap Table
- 3. Your Cap Table Timeline Founder Shares Option Pool Seed Financin g Series A Financing Series B and beyond
- 4. 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
- 7. 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
- 10. Seed Stage Seed Financing Options and Cap Table - +/- 20% dilution Some 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
- 12. 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
- 14. Want to learn more? • Go to www.shoobx.com Want to get started on Shoobx? • Matt Rowe - mrowe@shoobx.com • support@shoobx.com Questions?
Notas do Editor
- Start w/ intro about who we are - Kathy and Lynne from Shoobx What Shoobx is What we’re going to cover today Who are you? Who has incorporated, who is a DE corp, who’s taken in outside funding At end, we’ll talk about getting you onto Shoobx
- Lynne
- Lynne
- Kathy Motivation vs. distraction - Goal of the allocation process is to leave people motivated to help the company. If your process leaves people feeling like they don’t have what they deserve, it wasn’t done right. So have the hard conversations now - rarely is an even split between founders the right thing.
- Note that authorized and issued shares should not be the same - then you have none left for future issuances Leave room to grow!
- Kathy Maybe poll audience about early exercise options and whether anyone uses them Present the pre-investment increase in the pool as two stages of dilution - first the pool gets increased, so the founders get diluted once, then second the investors come in, so the founders get diluted again. So investors benefit because they’re not on the cap table when the pool gets increased. Also think about pool as it supports your growth / milestones - how long will the investor’s money last and how much hiring will you do in that time? Be prepared to present a plan that supports your desired plan size.
- Lynne Downside of SAFEs - works like debt but w/o interest or maturity date, when they convert they convert into series like A but not quite Also consider that many investors aren’t fans / aren’t familiar with these - much more a west coast vehicle
- Kathy - how does diligence process work through Shoobx why is the cap table important reiterating the entrepreneur has control over the cap table and the diligence
- Kathy Bridge notes have converted into Series A Series A converts into common in certain circumstances
- The End.