This document discusses capitalization tables, which outline company ownership and financing. It notes that capitalization tables show who owns what percentage of a company and how much they invested. The document stresses the importance of determining ownership structure and creating detailed long-term financial projections to understand capital needs. It outlines common rounds of financing like founders', accelerators, friends and family, angels, and VC rounds, and how they allocate ownership percentages.

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Powerpoint Templates
CAPITALIZATION TABLES:
HOW THEY WORK AND WHY YOU
SHOULD KNOWJohn Richards
Entrepreneur | Investor | Mentor | Professor

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JOHN RICHARDS
Introduction

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Capitalization Table
• A.K.A. "Cap Table“
• Document in Table Format
–who owns the company
–what the owners paid to obtain that ownership
• the amount of investment obtained from each source
–total amount of the various securities issued by
a firm
• e.g. common and preferred shares, options, warrants, etc.

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Every Company Has One
• Microsoft
– http://finance.yahoo.com/q
/mh?s=MSFT
• Google
– http://finance.yahoo.com/q
/mh?s=GOOG
• Facebook
– http://finance.yahoo.com/q
/mh?s=FB

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Venture Hacks
• http://www.venturehack
s.com/articles/cap-table

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How much Capital?
• Two critical mistakes
–Failure to determine the type of company and
who owns what
–Failure to plan financially, especially cash flow
• The all-important cash flow projection
–24-36 months of month-by-month projections
–Next 2-3 years by year
–Tells you your cash and capital needs

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Financial Projections
• A detailed, sophisticated process
• Takes experts 20-40 hours to do it right – moderates about 80 hours – and
novices should not attempt without help and guidance
• All businesses start off with a cash flow J-curve

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How much capital?
• Add 20-50% to the low point n the J-curve
• This is how much money (capital) should be raised
$128,000
$200,000
20-50% Buffer

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Ways to Finance the Company
• Bootstrap
• Sell Equity
• Hybrid - Convertible Debt
• Debt

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Founders Round
Founders
Investors
Totals

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Founders Round
Founders Round
Founding
Start with 4-10 million shares (unless Delaware)
Capitalize with $2,000 (or what is needed)
Totals of
Founders Round

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Founders Round
What’s the
problem?

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Founders Round – More Founders
Still 50-50!
This is a benevolent dictatorship!
NOT a democracy or committee!

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Much Better, BUT …
No 50-50 problem
BUT, how did we arrive at these
numbers?
Wild, wild west! Negotiation to
fixed numbers.
Is there a better way?

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Any More Problems?
What if one terminates early?
Fix: Founder Vesting

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Accelerator Round
Accelerator Round
Accelerator
$20,000
6% common stock
Totals of
Accelerator Round

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Friends & Family (& Fools) Round
Friends & Family Round
Friends & Family
Usually cheap common stock
This is seed money to get the company started
Pitfalls
Totals of
Friends & Family Round

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Angel Round

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Seed Round

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VC Round (Series A)
Note 2 Important
Aspects
WEALTH
CREATION
Nowhere is
wealth
created faster
DILUTION
Inevitable
byproduct of
the process

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IPO

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