Creating and Managing Your Cap Table

Written by Natasha Goncharova on . Posted in Blog, Startups

This is the second post in a series about cap tables. To learn more about what cap tables are, see our first post.

Now that you’re ready to create and manage your cap table, there are a number of tools to help you through the process rather than drawing it up in Excel by hand:

1) A SaaS (Software as a Service) optionTruEquity ($20/m, 10 equity holders* included $1.99 per month for each additional equity holder). TruEquity is a relatively new service launched in February 2011.

2) A pre-built cap table template: http://templates.modelsheetsoft.com/modelsheettemplates/capitalization-table-templates.aspx ($69).

3) Our list of freely available cap table templates (also try Googling “cap table.xls”):
http://www.sumwise.com/templates/capitalization-tables/?model=cap-table-with-options

Company_Cap_Table.xls

sample-cap-table.xls

Cap_Table.xls

Cap Table Generator.xls

venture-hacks-series-a-cap-table.xls

Update: Since publishing this post we’ve had a lot more interaction with cap tables and have discovered a nice SaaS solution for cap table management called CapMX offered by Silicon Valley Bank

Have Capital, Need Cap Table

Written by Michael Tauscher on . Posted in Blog, Startups

You’re about to raise funding for your company by bringing on advisers and investors and receiving their advice/investment in exchange for equity. If you haven’t already, you’ll soon learn what cap tables are and impact they will have on your future investment rounds and liquidity events (an acquisition or an IPO). Here is an overview of what cap tables are, why they exist, and the ways to manage them.

Before you pitch your company to potential investors, you usually will have done a pre-money valuation. This essentially provides a way for investors to, “determine how much equity to demand in return for their cash injection.”

As soon as your company has more than one investor (the first being you, of course), it is time to create a cap table to “list who owns what in a startup. [The cap table] lists the company’s shareholders and their shares.” [http://venturehacks.com/articles/cap-table]

There are a number of possible pitfalls along the way, however, mostly arising from the fact that you’re determining how shares will be distributed well into the future. Keep in mind, “Founders should expect their percent owned to decrease over time, but the number of shares will not change, and the value of these shares (measured in price per share) should increase as the company increases in value.”
[http://www.practical-entrepreneurship.com/resources/entrepreneurship/105_capitalization_tables.pdf]

In response to this question on Quora asking what his greatest lessons learned are, Max Levchin suggests that, “Having a large and complicated cap table is rarely a good idea. Few committed angels is better than $5k from everyone and their brother.”

Babak Nivi of Venture Hacks agrees with Levchin’s observation in his discussion of the “Option Pool Shuffle”. In short, beyond allocating shares to the company’s founders, employees, and investors, “the so-called pre-money valuation always includes a large unallocated option pool for new employees…” Nivi’s point is an important one: “Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valution.”

Your cap table should also provide an overview of how different phases of investment and dilution will occur. A investment broken into component phases might look something like this,

1. Start Phase: Stock splits occur and dividends in kind are paid at the start of each round.
2. New Sales Phase: Sell new securities (convertible notes, preferred stock, common stock warrants, options )
3. Post Sales Phase: Record investments and share units after sale of new securities.
4. Conversion Phase: Stakeholders can convert notes and preferred shares and can exercise warrants and options to obtain common stock.
5. End Phase: Record security holdings, prices and values at the end of the investment round

[http://templates.modelsheetsoft.com/modelsheettemplates/capitalization-table-templates-quick-start.aspx]

The resources referenced in this post should give you a good basic understanding of why cap tables exist and what influence they have over the beginning, middle, and later stages of a company’s financial profile. When you are ready to create and manage your cap table, see our second post in this series here.

Thinking of Creating a Startup Accelerator? A Comprehensive List of Resources to Learn From

Written by Natasha Goncharova on . Posted in Blog, Startup Accelerators, Startups

Recently I’ve been involved in a discussion about creating a startup accelerator and while I can’t share the details of the discussion I’m involved in, these are some of the resources that you might be interested in if you are thinking about creating an accelerator in your area or at your educational institution.

The current wave of startup accelerators or ‘startup factories’ as they’ve been referred to is not a new concept. Prior to the startup bubble in 2000 there was a wave of startup accelerators, most of which ceased to exist due to unsustainable economics. You can read more about the first wave of incubators in the report by Morton T. Hansen, Henry W. Chesbrough, Nitin Nohria, and Donald N. Sull of the Harvard Business School.

The second wave of startup accelerators, arguably originated by Y-Combinator in 2005, have more sustainable business plans and a better chance of remaining in the industry unless a Euro or Dollar crisis happens or unless some other “Black Swan” flies in.

Source: http://www.nesta.org.uk/library/documents/StartupFactories.pdf

As you conceptualize the idea of your startup, these are some great resources to learn from:

A comprehensive post by Ben Yoskovitz of Year One Labs, a Lean Startup accelerator: So You Want to Run a Startup Accelerator…10 Things to Think About When Starting a Startup Accelerator.

A comprehensive overview of existing startup factories: who, where, how much
http://www.nesta.org.uk/library/documents/StartupFactories.pdf.

A list of 102 startup accelerators:
http://blog.shedd.us/321987608/. 

Lessons learned:
http://www.instigatorblog.com/lessons-learned-lean-startup-accelerator/2011/06/06/

Are you thinking about a startup accelerator? Some Accelerator Resources:
http://la.startupfdn.org/2011/09/16/are-you-thinking-about-a-startup-accelerator/

“How to Build a Venture-Finance Ecosystem”, practical principles that the Babson Entrepreneurship Ecosystem Project have been identifying and developing for public leaders: http://goo.gl/fN4gh

The Facts About Startup Accelerators

Written by Natasha Goncharova on . Posted in Blog, Startup Accelerators, Startups

In the last 5+ years, startup accelerators (also dubbed ‘startup hubs’ and ‘startup factories’) have proven themselves to be effective in bringing startups from ideas to viable businesses. With the number of accelerators now rapidly increasing in North America and Europe, comparing and contrasting the methods and numbers of the most prominent firms is valuable in providing a picture of what the model for a successful accelerator might look like.

In his recent post entitled ‘Why Startup Hubs Work’, Paul Graham of Y-Combinator gave a list of the qualitative reasons why startup hubs are useful, “I think there are two components to the antidote: being in a place where startups are the cool thing to do, and chance meetings with people who can help you. And what drives them both is the number of startup people around you.”

Notable US seed accelerator programmes by location showing total number of startups funded to 2010
Source:
  p.8, The Startup Factories The rise of accelerator programmes to support new technology ventures http://www.nesta.org.uk/library/documents/StartupFactories.pdf.

 

In May, Tech Cocktail released their ranking of the top 15 startup accelerators and incubators based on their participant companies’ rate of investment post-program, the overall success of the companies, and on the program characteristics of the accelerators themselves. The #1 spot was a close finish between Boulder, CO’s TechStars and San Francisco’s Y Combinator.

To provide a clear side-by-side comparison, we will take a look at both TechStars and Y Combinator as well as Massachusetts’ own MassChallenge in the categories of up-front investment, location, duration, equity, and application/acceptance rate.

TechStars
For profit
Investment: Up to $18,000
Optional Convertible Debt: $100,000
Location: Boston (MA), Boulder (CO), New York City (NY), and Seattle (WA)
Duration: 3 months
Equity: 6%
Acceptance: 10 companies at each location (total of 50)
http://techstars.com/funding/

Y Combinator
For profit
Investment: $11,000 + $3,000 per founder (e.g. $17,000 for two founders)
Optional Convertible Debt: $150,000
Location: San Francisco (CA)
Duration: 3 months
Equity: 2-10%, usually 6 or 7%
Acceptance:  60 companies in two sessions
http://ycombinator.com/faq.html

MassChallenge
Non-profit
Investment: Given in the form of prizes which fluctuate depending on the judges (~15-20 prizes of $50-100k)
Location: Boston, MA
Duration: 4 months
Equity: None
Acceptance: 125 companies accepted resulting in 26 finalists (in 2011)
http://masschallenge.org/accelerator/2011

500 Startups
For profit
Investment: $25,000-$100,000
Location: Mountain View, CA
Duration: 3-6 months
Equity: ~5%
Acceptance: 12 in February, 2011; 21 in June, 2011; 140 total investments
http://500.co/2011/02/10/boom-goes-the-dynamite/

A comprehensive overview of existing startup factories: who, where, how much
http://www.nesta.org.uk/library/documents/StartupFactories.pdf.

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