How to Build and Model a Cap Table for Your Startup

Hi everyone, how's it going? My name is Ian Isaacs. I'm the head of global growth for the Founder Institute. Thank you so much for taking the time and joining us today. We have an amazing— I'm super, super excited for today's webinar. I say that for like nearly every one of them, but I'm genuinely excited for this one because we've not really covered this topic and I think it's very, very important. We've covered it in bits and pieces, but you know, we have a great speaker lined up for you today who's going to come and talk to you about everything you need to know about a cap table for your startup, how to build it, how to model it, and he's gonna go very, very deep. We have about 30 to 40 minutes of content, so I'm super, super excited for today. I'll let Jason self-introduce himself when we bring him on shortly. We had about 335, 350 people from my last count sign up for this event today. We're at about 75 people live. I'm expecting we'll get to the 150 mark or so. With that being said, let me just go over some housekeeping items so everybody knows where everything is. First off, as everyone can see on the right-hand side, there's a chat. Obviously, if you're on your laptop or iPad, please use the chat to communicate with us and just kind of let us know what's going on. So for now, throw in the chat where you're coming in from. I see a lot of different people coming in. Let me read this. It's Cape Town, South Africa. Abuja, Nigeria, another Nigeria, Cairo, Egypt, Bulgaria, Brazil, Princeton, New Jersey, Cyprus, Pakistan. I'm here based in Dubai, UAE, Switzerland, Netherlands, another South Africa. I think this is the UK. So we have a pretty— New York, San Francisco, San Francisco Bay Area. So we have a pretty good global audience. Our speaker is actually calling in from Australia. I don't know where exactly, but I know it's 3:00 AM for him, so I'm very grateful that he's taking the time to jump on in the middle of the night, which is awesome. So anyway, we have the messages on the right. Please take advantage of that. Right underneath the messaging, there's a Q&A button. Click that. Please use that to submit us, submit questions to me. What's gonna happen is Jason's gonna come on, do 40 minutes of content. After that, uh, we'll switch over to Q&A, and I'll be using the Q&A, um, let's say, uh, section to, to receive questions, bring it up on stage. We'll do about 5 to 6 of those, right? And the last but not least is you see a bunch of emoji icons at the bottom. Please use those to like just express, uh, any, any, any of those particular emojis during the presentation. All right, with that being said, we're about 3 minutes in, we're 100+ people live. Akshay, if you want to bring up Jason, that'd be great. In the meantime, I'm gonna run a poll, uh, just to get a good idea of who the audience is today. I would love to know, you know, what is the next round you're looking to raise? Are you looking to raise a friends and family round? Are you looking to do a pre-seed, seed, or Series A? Um, so as that's come— awesome, Jason, we can hear and see you.

Hi, how are you? Hi everyone, great to be here.

Awesome, Jason. Well, can you see the poll on stage?

I can.

Okay, awesome. So it seems it's a little bit early, we have about 35 people that have voted, but seems like majority of the people are doing pre-seed and we have some people doing seed and Series A. Yeah, so you have pre-seed and friends and family. I hope that information is helpful for you as you're doing your presentation. I'll let the poll run in the background, and, uh, so whoever wants to vote, they can access there. Awesome. Uh, Jason, we're ready for you. I guess for the audience, you want to tell them where you're calling in from? Because I know you said it's around 3 in the morning for you.

Yeah, yeah, look, it's— it is great to be here. Uh, found a lot— you'll all experience this with your global startups. So occasionally you get a really early one, but it's cool, you know, I'm used to it. So yeah, I'm calling from, uh, Queensland in Australia. Um, it's a beautiful place. We're very blessed. So yeah, look, happy to be here from Australia. I spent a lot of time in the US these days as well, but, um, at the moment down, down under, as they say. But thanks for joining. Uh, looking forward to sharing.

Yeah, thanks for being here.

Oh no, it's all good, it's all good. Look, we do have quite a bit to cover. Your cap table is one of the most— sorry, man. Yeah, go on.

Yeah, so I'm going to remove myself from stage. I'll let you take it away and then I'll hop back on during the Q&A. All right. So you can screen share whenever, but I'll let you self-introduce and then I'll disappear now. All right.

Okay, great.

Cool.

Thanks. I'm going to check my camera's okay. Cool. Hi, everyone. So yeah, we're going to cover cap tables for early-stage companies. I've got a little presentation. I'll just share my screen. I'm going to try and keep it to somewhere between 30-40 minutes. It is quite a dense topic. So there's going to be quite a bit of information coming your way. It is being recorded. It'll be shared. We're going to run through an exercise together at the end as well to help you sort of bed down and really understand the concepts in a very, you know, practical way. And there's also going to be office hours with me in a couple of weeks so that you can dig into this even further. So yeah, so my name is Jason Atkins. I'm the co-founder of Cake. We're a global cap table software company. We've got customers all around the world. And so yeah, I've been helping founders with their equity for 6 or 7 years now as co-founder of Cake. We've got thousands of companies on there. We mentor with the best brands globally. So I really hope that this information is super helpful for you today. So what is, you know, modeling? Today we're going to talk about what it is, the common mistakes to avoid. We're going to give you some examples. Um, we're going to talk about, you know, modeling out capital raises. We're going to be talking about how to model out your ESOP. Or your employee equity. And there's a really good exercise at the end. I'm going to give you a link that you can run that exercise yourself. Make sure that, you know, your cap table is modeled well for that next round, at least one round. Okay, so let's just cover off the basics. I'm just going to set a little timer so I can keep on track. Talk all day on this stuff, but we want to keep moving. So your cap table is essentially a summary of who owns what in your company's equity. It's very important for your ownership compliance. It will include all different types of equity, including stocks or shares or SAFEs, notes, options, or warrants. As I understand it, globally these things, they might have slightly different names, but when it comes to early-stage equity globally. Everything I say is the same, which is awesome. If there's differences I can think of, I'll highlight them. But, you know, we've been learning this globally now for some years, and all this information should be relevant to you no matter where you are. So there'll be, you know, your cap table is governed by, you know, an official document that comes from your country regulator. In the US, it'd be called the Articles of Incorporation. Every time you want to use your cap table, you need to get it approved by the stockholders, the shareholders, the owners of the company. It's super important to keep it up to date. Don't mess it up because a bad cap table is a red flag for investors. So how is it used? Very simply, It's used to help you comply with tax and regulatory requirements. It's used to help you raise funds and manage investments. So you need to provide it to investors before and after any sort of investment round so that they know that they own exactly what, you know, you've agreed and to see the impact of funding decisions. So what happens if you add new investors or buy shares or safe round or employee equity, what happens to the overall ownership? So it's to understand the impact of different types of funding. So, you know, how or why or when are we using it? So firstly, you know, to quantify potential dilution of ownership across funding rounds. I'm going to talk a little bit more about dilution as we go through. To assess multiple funding offers with different terms. So you might have, you know, two different offers with different valuation caps or a different discount on a SAFE or, you know, a different pre-money valuation. So you can model out, look forward and see what the dilution is in different funding offers. To understand the impacts of convertible debt securities. So that could be a convertible note or a SAFE with different valuation caps and different discounts. You have to be able to understand how much equity those instruments will amount to when they convert. Number 4, so we're managing, monitoring employee option pool levels. If you have employee equity, which is very common globally in startups, you might have 10% of your equity in that pool. But how do you know how much of that pool you've issued and how much is left and when it's going to run out and when you need to increase the size of that pool? So very important. And then finally, number 5 would be potentially around an exit scenario. So just say you are later stage Series A, Series B, what's going to happen when you sell the company, and how much equity is each investor or employee going to receive? How much cash will they get when you liquidate the company? So at a high level, what are our goals for our cap table? Why do we do all this work? So one of the most important goals, you know, this is Founder Institute and I'm a founder as well. We have to maintain as much ownership as possible in our own companies. Of course, you have to do that in a fair way so that investors get what they need and the team get what they need. But you do want to maximize ownership for the founders. And there's strategies that you can undertake to ensure that happens. So we have to make sure that investors trust the team. So the cap table has to be accurate and clear and easy to understand so that you can raise more capital and raise easier. And we have to make sure the team are empowered by equity as well. A lot of startups will have, you know, 10 or 15, 20% of the company in the ownership of the team over time. And so it's super important that, you know, the company's getting value from, from that equity as well. So just digging into one of the cap table goals a little bit more. So founders want to own, you know, 50% or more of the company at Series A. It's not easy. It does require efficient cap table management and efficient use of funds. So just talk through a little example. So The best, you know, the best way to raise capital, I suppose, and run your rounds would be to say the first round would be your seed round and the next round would be your Series A. Then you only have, you know, one round of dilution at seed and then you're running your Series A. But what often happens in a startup's life is that there's multiple early rounds and that is okay. Is quite common, but it's important to understand how that's going to dilute you. So for example, if you run pre-seed and seed, and then you have a second seed before you get to Series A, each round can dilute you by 20%, plus you have the ESOP dilution in the 10 to 20% range. So if you think that through, you're starting with 100% with the founders, then you add the ESOP, so you go down to 85%, then you do your pre-seed, you go down to 70%, your seed could take you down to 60%, and your Series A could take you down to 48%. So in that example, at Series A, the founders have, you know, 48%. So it's around the target. It's not too bad. But if you were able to go pre-seed, seed, Series A, or, you know, skip one of those rounds, you can see how you're going to have more equity. And, you know, that's an important strategy. So with regard to minimizing dilution and retaining your equity, it's important to be awesome with your funding and raise less rounds, as I said. How can we do that? So we've all heard of bootstrapping. It's essentially just achieving as much as you can without raising a round. It doesn't mean you have absolutely no funding at all. It could include, you know, a little bit of your own capital or a little bit of friends and family. It definitely includes a lot of sweat equity, be that from yourself and/or, you know, your team. So, you know, learning fast and hitting as many milestones as you can while bootstrapping is really important. Even when you do have funding, so if you've managed to get a pre-seed round done, learn as fast as you can, hit as many milestones as you can, as quick as you can. Time is a real, really, really costly element when it comes to your cap table and dilution. So every month that you're burning funding that you've raised, you're essentially diluting your equity because you need to raise, you know, capital sooner. So the faster you can learn, the faster you can hit milestones, the less dilution you're going to have. Yeah, being super strong with your terms and valuation. So Some founders are exceptional at getting the highest possible valuation on their rounds. You don't want to be unfair to the point that it costs you down the track, you know, with future rounds. So you want to have a valuation that's fair and reasonable so that you can have increasing valuations, you know, each time. But at the same time, you don't want to have your valuation too low that you're going to overly dilute as you go through the round. So You know, just being aware of where the market is, you know, from a valuation perspective, making sure that you're pricing yourself as high within the reasonable range as possible and being really strong with that, explaining to investors that it's important that you don't overly dilute because you need to maintain your cap table, you know, in strong shape through the rounds. You know, having an amazing team with no waste. So, you know, having the smallest possible team to have all the, you know, the needs that you have to be able to hit your growth and product goals. Is very important. So for example, having product and design and engineering, sales and marketing skill, you know, as small as you can to move quickly is really important to not having to raise too much capital and get diluted. And the last one is not obvious, 'cause when you go into market and you're learning your channels, there's quite often that founder-led part that's very important, especially if you're innovating. But you want to get as quickly as you can from founder-led to really scalable channels because the scalable channels are much more fundable with seed and Series A funding. So just quickly, you know, I think we're going to finish the cap table section and get into modeling in a minute. But, you know, what are the red flags? What are we trying to avoid? What do investors not like to see? So they don't like to see large holdings with no value add. So For example, the most likely way this would happen would be a co-founder that has left. So you might start off with 50% each and, you know, at the end of the first year, somebody leaves and you've got this huge amount of equity with someone that, you know, is really not adding any value. So you have to have a vesting schedule, founder vesting on founder equity so that if someone leaves, the founders that remain, can get that equity back into the company very easily. So that's really, really important. Again, founder equity too low. So if the founders have been too diluted over time early on by deals with, say, friends and family or early angels, things like that, then investors aren't normally willing to invest because they want the founders to have enough equity to go through the really hard journey that needs to happen. By not having the ESOP in place— so whenever I say ESOP, that you just think of that as employee equity in whatever country. So ESOP stands for employee share option plan or employee stock option plan, or, you know, whatever country you're in, just understand that that's where we're talking about employee equity. So it's extremely common all around the world now to compete and get the right talent, um, you know, and engage and retain them. It's very important to have an ESOP And investors don't want to see you raising money from them and then adding the ESOP because then they get diluted. So you want to have that in place. Of course, you want to have good data and good records that shows that you have the capacity, you know, to do the things you need to do as a founder. You get a little bit of, um, like, room for error, like, early on, and you can get some help from, from investors and advisors, but you want to get into really good shape with the cap table very early on, builds trust with investors. Look, bad terms and side deals, um, you know, with friends and family and your early angels do reduce the chance of getting seed and Series A funding from more professional investors. So you want to keep those terms as standard as possible. And there's documents like, you know, the Y Combinator SAFE, um, and, you know, Cake has standardized SAFEs and subscription agreements and things like that built in so that you don't have to take bad terms. Yeah, and just having too many investors can create problems for your cap table as well. All right, so getting into actually modeling out your cap table. So that's kind of the core of why we're here. So, you know, a cap table model is essentially looking forward and seeing what's going to happen with your cap table over time. So if we currently have you know, a few founders, what's gonna happen when we raise pre-seed? How much dilution are the founders gonna get? Or if you've already raised pre-seed and friends and family, what's gonna happen when we raise our seed round? How much dilution is everybody gonna have? So it can kind of be scary and confusing, especially, you know, a lot of founders don't have finance or legal backgrounds. And it is kind of an uncomfortable thing to see your percentage going down over time. But the concept, the basic concept is just say, you know, you're at the seed company and you're this founder here with the gray box with 30% of the company after seed. So you've got a $5 million company. If you look at the bottom, you know, they've raised $1 million on $4 million pre, that's a $5 million post, $5 million company. You've got 30%. So that's $1.5 million worth of equity. So that's great. But that's very illiquid. You couldn't really sell that. Now you fast forward to Series C, that founder has come down to 12%. So they've been diluted from 30% to 12%. But at that point, if you have a look down the bottom again there, it's— they've raised a $20 million Series C round on an $80 million pre, so $100 million post. So they've got 12%, which is $12 million. And at that point, that's quite liquid. So that founder, even though they've been diluted, from 30% to 12%. They've gone from $1.5 million to $12 million in value. And, you know, much more liquid value at Series C. So very important to be aware of that. The types of modeling that you can do, and we're going to run through some of these today, you know, modeling out a new round, converting SAFEs and notes, really important to understand how to convert your SAFEs and notes, including the valuation cap and discount if you have it. Modeling out employee option pools is another important type of modeling, and I'm going to go through that today. The last type is exit waterfall modeling. This is a later stage modeling process. I won't be going through that today. It is an important modeling type, but as this is an early stage presentation, we won't be digging into that in detail today. But if you need help with that, please do let me know and I can information. Okay, so, well, that one we've already done. All right, cool. So let's go into some examples. So we're going to run through this in a bit of detail just to help you get the basics down pat. So this is modeling out one angel round. So at the top in the assumptions, we've got the pre-money valuation. So that's the valuation of the company before the money comes in. And then we've got the number of shares, 2.5 million shares, and the share price of $2.40. And then you can see there's $2 million in angel investment coming in. The post-money valuation of, excuse the rounding, $8 million. And then if you go across the top there, you can see the founders own 100%, 2.5 million shares. There's nothing with employees and there's no investors at this point. And then on the right-hand side at the top, you can see the new money coming in, um, or the angels coming on board. So now the angels have 833,000 shares, and the founders have been diluted from, from 100% to 75%, and the angels own 25%. So that's the summary at the top. And then going down into the actual detail, you can see John Smith has 1 million shares, Susan has 500 shares. You can see the percentages before the round: 40, 40, 20. And then down the bottom, this is coming in— Tony, Steve, Bruce, Carol, and Wanda. Um, and you can see the amounts they'd entered in the angel investment. You can see the amount of stock they're getting. You can see the percentage that they own. In the commons stock. And then you can see the— so that's very— an angel round. So this is an almost identical summary except we're adding in the ESOP, adding in employee equity, and we're just having a look at what that does to the cap table. So the assumptions at the stop— at the top stay the same, but the summary of the cap table at the top in the middle has employee equity $384,000, that's 13.3%. And then if you go across, um, after the angel round, you see the founders have got 65%, the employees have got 10%, and the angels have got 25%. So the only difference between what the one I just explained. And this one is that we've added the employee equity and it's diluted the founders. So that means that the ESOP or the employee equity went into the cap table before the angel round, which is the, the order that you're supposed to do it in. Coming down to the detail below, you'll see the founders are still there, John and Susan and David. And then we've got some common options, um, with the team. So Rick and Carl and Phil and Frank have some, some options. And then we add the angel round in down the bottom. And then on the right-hand side down the bottom, you can see the overall fully diluted equity in the company. So let's go on to the next level of complexity when modeling out around. So at the top, the assumptions— look, there's different numbers in this, but we're really just here to look at the process and try and understand how adding in new investors changes the ownership and dilution and how you can sort of mathematically do that in a model. I'm going to give you a modeling template shortly and we're going to do an exercise together. So this is just talking through the process. Then we're going to do an exercise together and then we can, we can sort of ask questions at the end. So in this case, the assumptions, we've got a pre-money valuation of $18 million because we're raising a a later round. You can see again you've got the number of shares prior to the seed round, the share price, the seed investment of $5 million, post-money valuation of $23 million. And going across, you've got the original cap table summary with the founders and employees. And then go across further, you've got the angel round coming through with adding their 25%. And then going across to the right-hand side at the top, you'll see there's now further dilution with the seed investment the seed investors coming in have 1,068,000 shares, which is 21.7%. And you can see the percentage ownership of the founders, employees, and angels have come down. Going down into the detail below, you'll see that the founder cap table has remained the same as the last page. It doesn't move. I'm not— it's not the same as the last page, is it? Because it's different numbers. But, um, you know, you've got your founders and your employees there. One sec, I'm going to just fully mute myself. Can I mute myself? Just need to sneeze a little bit. I'll try not do it, break your ears. Um, so yeah, so we've got the, the founders and employees on the left, and then we've got the Angel investment coming through in the next section, and then we've got the seed round coming through in the next section. You can see the money coming in and the overall dilution. All right. The final example that we have is a Series A example, and you can see how these are just building on each other, and you want to keep your cap table in this way. If you're using a solution like Cake, Cake will manage all this for you. We obviously do recommend using a solution like CAKE to manage your cap table. It is a lot, lot better than using a spreadsheet, but the spreadsheet is a great tool as well. And I'm going to obviously explain most things via spreadsheet for you today because I want this to be as inclusive as possible. So, you know, this is to explain the process of cap table modeling, but this can be done better inside a solution, you know, like CAKE. There's others out there, of course. But just going through this process just one more time to help understand how this builds on itself. So at the top you've got assumptions. So this is a Series A round, pre-money valuation $60 million. Now the number of shares is there, the share price is there, there's $6.5 million coming in, and then you've got a post-money valuation of $66.5 million. And now you can see similar to the prior examples. You've got the original founding cap table, then you've got the angel investment coming in on the next summary, then you've got the seed investment coming in on the next summary, and now you've got Series A investment coming in, and you have your overall summary. And then we've got an additional section at the top here where you start to analyze voting stock. You know, the further you get along, you might have preference terms, and you might start to have a difference between ordinary and preference terms, and you could have different voting rights. If that is the case, it's nice to start to track what voting rights different investors have. Going down into the bottom section, just to cover the detail quickly, you can see, you know, you've got a summary of your founders and your original employees. You've got your angel investment coming in, then you've got your seed investment coming in, and then you've got your Series A investment coming in. One thing I would add that isn't in this summary is, you know, during this time, you would normally allocate an ESOP as well. I haven't got it in this example, but you can see on the top right you've currently got an unissued ESOP. You would be normally allocating more equity to your team throughout this, but this example is, you know, designed to help you understand how the round modeling occurs. Great. All right, so moving on to managing your options. Employee equity is normally done via options, but, you know, if you're using shares to do your employee equity, just that's, you know, that's fine. All this stuff's still relevant, but, you know, the preferred method is normally options. Some countries, you know, issuing employee equity is really difficult, so you would be using like a shadow scheme potentially, um, that's not actually equity but acts the same way. But, um, look, you know, largely globally, options is the, the normal way to do it. So, um, as I said before, you would normally put the employee equity, the option pool in place before you run around, or if you need to increase the size of the pool, you would normally do that before you run around. You want to try and make sure it's big enough to handle all the people that you need to hire in the next 18 months. You need to, you know, have an understanding of how much equity is going to be in your remuneration policy. You need to understand market expectations for options. So how many options should team members be getting in the country that you're operating in, or the countries that you're operating in? You know, what do advisors expect? Um, are you going to do any sweat equity for early engineers or marketing people or whatever? And you want to really create a budget for that so that you can understand how long it's going to last. I have an example, you know, to show you in an exercise, um, you know, just coming up shortly, but You know, very simply, this is what a model could look like. So you, you know, you've got your planned team, the type of, you know, are they an employee or a contractor or an advisor, what's the annual cost of their salary, and then, you know, how much equity are they going to get on top of their salary. And then you can calculate how many, you know, what the dollar amount is of their options and then their total package. We think that the best way to articulate to your team what they're going to earn, so their cash plus their equity equals their total package. And then you can calculate how many options they should receive based on that dollar amount. And then you can calculate what percentage equity they own of the company. And this little section down the bottom here is how you calculate how many options. So you've got the last round details of the company valuation, how many shares are on issue, how many options are on issue, what's the share price. And then you can calculate how many options that is. I'm going to go through that in a minute. Also, how much equity to give. It's a key consideration in different countries all around the world. Probably not so much country to country, I would say, but in different regions around the world. So, you know, Europe and, and, you know, Southeast Asia, US, you know, whatever, wherever you are, there are benchmarks and there's better and better data coming out. In APAC, you know, CAKE has awesome benchmarking data. So if you're hiring, for example, an engineer, a senior engineer into a Series A company, you know, we can give you benchmarks on how much equity they should get. And all around the world, I think this is becoming, you know, really readily available. So, you know, this is important for you as founders. You don't want to give away too much equity, but you want to make sure it's fair and competitive so that you can attract the best talent. So do look for benchmarking tools to help you understand how much equity you need to give. Okay, so before I go into the next section, I'm just going to talk about modeling office hours. So as I said earlier, the goals of your cap table and management and modeling are very, very important. You want to maximize your equity. You know, modeling this out correctly could be the difference between you owning, you know, 10% more of your own company or not. So it's an extremely important skill. It's totally a learnable skill. You don't have to be too scared. Like, you absolutely can learn it, you do need to learn it. But you need to be fair about it as well. So you need to understand what's a fair valuation for your round, what's a fair amount of equity, you know, to give to your team. So you're trying to balance that, that fairness to make sure that each stakeholder on the cap table has the right amount of equity. You want to look great to your investors when you're raising. You know, having a strong cap table and a clear cap table model is, you know, really important to help investors build trust with you. And it's important also to build an awesome ownership culture to attract, engage, and retain the best possible team that you can. So with Office Hours, that's going to be a teardown with me in a couple of weeks. We're going to— I'm going to give you an exercise in a minute. We're going to go through it together and you're going to take it away and build it for your own company. Super valuable process for you to go through. It's going to help you get it right. We're going to answer all your questions. It's going to be in about a couple of weeks' time, and the Founder Institute team are going to share some more information about that with you, definitely. But I just wanted to run that, run through that with you as well. All right, so now we're going to go into our modeling exercise for today. There's been a lot of information. Hopefully you've taken some notes. I'm sure you're going to get summaries on the deck and recording and everything to help you learn. But a great way to learn is actually get your hands dirty. So we're going to get you a spreadsheet in a minute and get you to have a play with it. We want you to build it for your company at the stage you're at. So level 1 of the exercise is going to be to model out one price round and convert your SAFEs and notes. So if you're already doing pre-seed and you've got some SAFEs, we want you to at least, you know, model out your seed round with a price round and convert your SAFEs into that. Level 2, of the modelling exercise for those of you— hopefully you can all do Levels 1, 2, and 3, but if you at least only do Level 1, then that's great. You've learned something and you've planned ahead. Level 2 of the modelling exercise is the same as Level 1 plus modelling out your employee equity, so your employee options. And Level 3 is going to be modelling forward 2 rounds, which I always advocate is the best thing to do just to think through how it's all going to go, how much equity everyone's going to have a couple of rounds into the future. So modeling forward 2 rounds, making sure you convert notes and SAFEs, plus your employee equity. Okay, so let's get into this example. I'm going to— hopefully, if I shift this over here, can you still see that? Just let me know if I've just messed that up at all. Looks like you can still see that. Okay, cool. Just want to make sure I've got as much on my screen as possible. All right, so actually, I better give you this now. Excuse me while I put this in the chat. It's going to look a bit funny. I kind of want you to play with this while, while I look, while I explain it to you. So, firstly, up the top here on the left, just, you know, obviously understand that you need to make a copy of this. This is a protected sheet because it's a template, and this is all just dummy information, but you need to make a copy. So you just go up here, File, Make a Copy, and then you can edit everything in the sheet. So, as I said before, this is the exercise. The goals are to minimize the dilution, minimize errors, You know, some modeling is better than none. So if at least do level 1, please, it's very important. Please do join the upcoming office hours to get unblocked and make sure you have a great cap table. And if you find this hard, please don't give up. This is a very learnable skill. It's a very important founder skill. So ask questions. So as I said, there's, there's explanation here of what you need to do for each level. So with level 1, you need to enter your current cap table information into the cap table sheet. So you come over here to the cap table sheet, and if you're still very early, you know, you haven't run around yet, you put your information in, in this foundation round. So pre-money, and if you don't have a pre-money valuation, just estimate. If you need an evaluation tool, I'm also going to give you this Founder Institute partner page here. Look, there's lots of ways to value, but there's some very, very simple ways as well. And in here, in this toolkit, you've got a very, very simple valuation calculator. So if you didn't do valuation, you can do that there. But yeah, so you get your pre-money, the size of the new round, if it's just like a friends and family, like really basic early round. Then you've got your post money. Here you've got the total number of shares on issue, the size of the ESOP pool if you have it. So you need to enter these in, and then you need to enter in this section down here. So how much do the founders have? What's the foundation investor? Is there any ESOP? So that's, that's sort of where you would fill it in if you're at that stage. Now, if you're a bit further along and you've already done a seed round, for example, you could start here. You could start here with the seed round. And you could just fill this information in. Or ideally, you would go and you would build your foundation round, then you would build your pre-seed round, then you would build your seed round. So it's really nice to be able to build it up from the start. You don't have to do that if it's too complicated, if you're getting lost. Um, if you've already done a seed round, you can just start from there and then you can model forward. So as you can see here, this allows you to do like the foundation round, pre-seed, seed, and Series A. So yeah, it's a really cool tool. So at the top you've got your summary information, and then down the bottom here you've got your more details. So however many founders, you can add rows here if you need to. And then with your investors, again, you can add rows in here to include all the investors that you need. And then the ESOP, you add, you know, into the bottom here. So going back to the exercise, what I need you to do is enter your information into your version of the cap table sheet. Obviously name it with your, your your company. Then, you know, ideally add information from the foundation round. You can, as I said, you can start from wherever you're currently at. You need to model out your next price round. So if you're, for example, you've done a foundation round and your next round, your pre-seed is going to be a SAFE, you really do need to wrap, model out all the way out to your seed round and make sure it's a priced equity round. Because if you have SAFEs and notes, as you can see here in rows 13, 14, 15— sorry, 13, 14— you need to include the conversion valuation and the conversion discount. So this is quite a complicated thing to do for non-financial people. It's totally doable. But if you've got a, you know, a SAFE with a $5 million cap, and a 10% discount, or you've got a SAFE with an $8 million cap and a 20% discount, that converts very differently into totally different amounts of equity, and you need to be able to model that out. So make sure you model out your next price round. That's why it's priced there in bold. So you need to make sure your SAFEs and/or notes convert to shares or stocks. Right now, level 2 of the modeling exercise is— Yep.

Sorry, Jason, seems to be an issue with the access to the sheet. If you could maybe change that, people can't see it at the moment.

Okay. It says here people with access. Okay, let me just try this again. So I'm going to copy that. Thanks for letting me know. I did actually make a special copy for this event. So yeah, apologies. I probably hadn't really shared that. So my bad. Thanks for letting me know. That'll, that'll help a lot. Cool. Okay, so now you have access. Can we just double-check that before I move on? It's quite important. Someone just let me know if we have access, please. Great, works for us. All right, awesome. Thank you. Cool. So level 2 is modeling also your employee equity. See how long I've got. A couple of minutes. Try and keep this quick. So with that, you want to do everything in level 1, but you also want to go to this ESOP allocation page and build out how you're going to model out your option pool. So there's normally, you know, for argument's sake, 10%. So down the bottom here is where you start. So you put your Last round valuation. And again, if you don't have one, you know, put the best valuation example that you can. So you might need to do a quick valuation. You do need a valuation to be able to manage out your option pool. Then you put your total amount of shares and, you know, shares here and the total options here. Separated out the options. So you put your total shares here, total options here, then your total of shares and options there, and then you have your share price. So you need to fill in this bottom section and then you start putting your team up here. So the role, the type, the remuneration, the amount of equity they get on top of their remuneration, and then that calculates out what the dollar amount is of their options. Then it calculates out their total package, and then the spreadsheet will calculate out how many options they should get based on the amount divided by the share price and the amount of equity that you should get based on the total amount of shares in the company. So this is a really quite simple way to model out your pool. So you can add more rows in here if you need to. You want to kind of model out how many people you need on your team, including advisors and sweat equity, in about an 18-month period, just to make sure that your option pool doesn't run out. So over here in G22 is the total number of options. In G21 is the total of options that you've planned out. And then in G23, we'll tell you how many options you have left and how much of your pool you have left as a percentage is H23. So really simple way to model that out. You don't have to do it like based on remuneration. If you want, you could sort of just do it based on the total number of options. You can just enter them in column G if you want to do it in a slightly more simple way. But look, there's a really nice simple way. So that's, that's That's level 2. So level 1 is modeling out one round. So just say you're at foundation round, you're at least modeling out pre-seed. But if you're going to do a SAFE, you have to go all the way to seed because you need to model out a priced round. If you've already done pre-seed, you really need to model out just seed to, you know, for level 1. Level 2 is modeling out your ESOP as well. And level 3 is modeling out 2 rounds plus, you know, your employee equity. So that's ideal. So from pre-seed, say, through seed and out to your Series A, including all the ESOP. So I think that's it from me. I think I'm also on time-ish. So hopefully that was really helpful. And yeah, I think we're up to Q&A maybe now. So back to you guys.

Hey Jason, this was super, super awesome. Thank you so much. Let me see if the viewers can see you. Uh, very, very in-depth. I like the fact that you shared so much content around the actual cap table. Some people couldn't see some of this stuff in the presentation, which is expected because screenshot. I like that you sent out everything to everyone so they get, you know, you guys get full access to everything. Um, let's kind of jump into the Q&A because there's a lot that's come in. So folks, the best way to do this is I want to do 5, 6 questions and then break out for networking. But, uh, is it please go into the questions, upload it, and then we'll kind of go from there. So you talked a little bit about benchmarking, uh, Guillaume Uh, from, uh, Cortiva Brazil is asking, what's a good benchmark to issue pools of shares to your very early employees? Vesting of 5 years seem okay? I should know, these are going to be hard questions to answer because everything that says the lawyer answer would be it depends. But, uh, to your best knowledge, so whatever you can, your best experience, so would you mind answering this?

Yeah, great. Yeah, look, we're huge believers in streamlining, standardizing, benchmarking. This founder journey is so difficult, we don't want every little thing to be to complicated. So yeah, I think there are very clear benchmarks when it comes to vesting, and everyone globally is really taking their lead from the US. So the most common vesting schedule is 4 years with a 12-month cliff. So what the cliff is, for those of you that are newer to this, is in the, in the first year, the employees won't earn anything until they get to the the end of that year. At the end of that year, they'll get that whole year's worth of equity in one go. So that kind of protects the company because they're not really getting equity or options until they've achieved that whole first year. And then they get, you know, they get it then. So yeah, 4 years with a 12-month cliff is the standard. Some countries will have a little bit more towards 3 years with a 12-month cliff. You could go out to 5 years. It wouldn't be problem, I don't think, but the standard is 4 years.

Awesome, thanks so much, that was super helpful.

Uh, we also—

we don't have vesting benchmarks or so, but we do have benchmarks for your raise. If you go to fi.co/benchmarks, there's some data there for you all to check out. Uh, all right, let's move on to the next one. Emily from Centennial was asking what's the best way to determine your company's initial valuation. I think you had a calculator that you shared earlier, you just want to briefly go over that.

Yeah, absolutely. Like, I can't share my screen right now, but I think in this Q&A section, maybe if you let me jump out of that question, maybe I can. Yeah, perfect. All right, I'll do it now. So we've built a bunch of tools for founders because, you know, like Founder Institute, there's just so much to learn. And so this is the valuation template that we've built. So there's 4 main methods that you can use. The revenue multiplier is more sort of a Series A plus. That's the one everybody hears about, you know, 10 times revenue, whatever. That's very standard, but it's not as common sort of pre-seed and seed. The valuation by stage is the most common way probably, which is kind of just like, where are you? Are you at idea stage? Are you at MVP? Do you have revenues? Is your revenue growing? I think it's most common to just you know, try and fit in one of these buckets and explain why you think you fit in that bucket and where you fit. Um, that's probably the, the simplest and easiest way. One of the, you know, problems I see founders doing is spending a lot of time on their really detailed financial model very early when they really have very little data. And they do this big model and do a big valuation. They can even sometimes pay a lot of money for that, and investors don't really pay that much attention to it because it's too detailed and the company so, so early. So I do highly advocate doing a very simple valuation like valuation by stage. That's how investors are going to look at you anyway. The future valuation method is a method you can use. It's not one I really like to use early because again, you have so little track record, you don't have a lot of real data. So, but you can, you know, say, hey, what's my company going to be worth in 3 or 5 years' time? And then discount that back, including dilution to get the current valuation. And then, you know, very early around the accelerator stage, the Berkus method is a widely accepted valuation method. So you give yourself a score between 1 and 10 for each of those 5 factors. So the idea, the prototype, the management team, strategic relationships, and initial traction. And then you multiply each of those scores out by $500,000 and it gives you a total valuation normally in the $1 million to $2.5 million range. So that's a widely accepted valuation method as well. And We've actually got a spreadsheet version of this that you can use. So you would come into here at the top here. You can do a weighted average of a couple of different methods if you want, or you could just do, you know, 100% by stage. And then you come down here and you sort of fill in that section. So if you were going to do by stage, you might write in here why you think, you know, so like I'm live, I've got an MVP. I've got some early traction, I'm valuing myself at $4 million, for example. Or you could do the Berkus method here, whatever. So I've got a template for you. And the most important thing in my opinion is to have a clear method that you've used and be able to have a good conversation with your investors. And just before you raise, just talk to your advisors and talk to some investors that you know, go through the methodology you used, and you'll be in a good situation to go out to market and actually ask for capital. with that valuation. Someone's asked where to get that, so I'll just double-check. I'll just double-check you've got that. So first of all, I'll give you the toolkit, and then you can click through to— this is the toolkit here, and you can click through to the valuation page from there. That's got the Founder Institute discount on it as well, so you do get a discount as a Founder Institute partner. So if you want to use CAKE, um, there's a discount code on there for you as well.

Okay, perfect. Yeah, we'll definitely share that. We'll share all the links in the follow-up email as well, guys, also along with the recording. All right, let's do a couple more and then try to break up for some networking. I like this question by Ella. She's asking, if you don't have employees at the pre-seed, do you still recommend allocating unassigned employee options in the cap table and present it to the investor? I guess that's this.

Yes, absolutely. Yeah, great question. And yes, definitely. I think, um, the investors— the main thing you want to avoid with investors is that they give you their money and then you add the ESOP afterwards and they immediately get diluted by that ESOP allocation. So very good question, great thing to do. You don't have to issue equity to the team. You just have to have it in the model. So, you know, the process is you sign a resolution of the founders essentially at that point, or if there's like a little bit of a friends and family money there. So the, the current shareholders sign a resolution to say we're implementing 10% pool. And then when you do your model, you've got the founders, you've got the 10%, and then you show that to investors so they know that when they invest, um, the ESOP pool's already created, then they're not going to get diluted. So yeah, perfect, good question.

Yeah, that's great. Uh, Nini from Brooklyn's asking, uh, what about the board of directors or advisors, uh, that you give equity to? Um, where would they fit in? Do you just kind of put them at the top, or should you kind of model that out from, I guess, earlier on?

Yeah, so you don't have to give equity. You don't have to give equity to your board of advisors, first of all, but it is a good idea to have your board with equity. Sometimes a board member will invest to get a board seat. That's probably the best way. But with your advisory board, it's great to give them a little bit of equity. It's great to be doing this with Founder Institute. I would always advocate their FAST agreement for doing founder— for doing advisor equity. So if you haven't seen it before, just Google Founder Institute Fast. And it's a wonderful agreement that you can get into with your advisors, and it helps you understand how much equity to give them. So for example, it has— yeah, great, thanks for sharing the link. So, you know, if you're idea stage or if you're growth stage and how much value that advisor is bringing, it's a really great way to help you understand how much equity to allocate to your advisory team. And then you would go to a you actually then have to grant them, like you have to sign that granting letter as well, which you can do via manual way or via CAKE to actually issue the options. But yeah, so if they have them, put them in the option planning template and then make sure that the overall allocated and unallocated options is in in the exercise as well.

Awesome.

Should just show you how to do it in the template because you're going to be using the template. So in the template, you would go into, into this section, um, in here.

You're not, you're not sharing your screen right now.

Oh, okay, my bad. Got it. So just come in here and add any advisors into this section. And then on your cap table, you want to have, you know, allocated and unallocated. So anything that's been granted would be an allocated, and then what hasn't been granted would still be an unallocated. So you've got the overall ESOP pool in your overall summary.

Awesome, that's super, super helpful. Let's do one last question just to make sure that we, uh, can Breakout for networking. This one is by Rodrigo in Madrid, Spain. You talked a little bit about pre versus post money, but like, as you know, everyone in the audience here is pre-seed. I guess at a high level, what do they need to know about pre versus post and like, how can they prepare for that accordingly?

Yeah, so first of all, pre-money, is essentially the value of the company before the round. So when you value your company, essentially you're valuing the pre-money and the post-money is the pre-money plus however much cash you get. So that's the first thing to understand. It's not super obvious the first time you do it. To me now, after all these rounds, it seems really obvious, but I remember back in the beginning, like, what's pre-money, what's post-money, why is it different? You know, like, so the post-money is just the pre-money plus the cash. So that's the absolute basics. So like, once you know that, if you're talking about valuation, whenever you're talking about your valuation, you must be clear, is this the pre-money or is this the post-money valuation? Be very, very clear with investors. Probably the biggest mistake you can make with that is that the investor thinks you're talking about post-money and you're talking about pre-money, because it can be 20% different. So for example, with a SAFE or a convertible note, if you're issuing a convertible note, you— or a SAFE, you must explain if it's a pre-money or post-money valuation on the valuation cap or the discount when it converts, because that can have a 20% difference in the amount of equity that that investor is going to get. So just know what each term is and know when you're communicating which valuation you're using. I think globally the standard for SAFEs is post-money. So the Y Combinator SAFE is post-money. Our SAFE in Cake is post-money. I think everybody should just use post-money SAFEs. We're gonna have a lot less problem. Um, but just look for that in any document that you're reading around, around, and make sure that you understand what it is. And when you're communicating to investors, make sure you communicate very clearly because this can actually have a pretty big impact on the dilution, um, that you can get.

Awesome, thanks. That was super, super helpful and insightful. Uh, let me just be back. But yeah, Jason, this was a lot of fun. Thank you so much for taking the time. We're going to break away right now. We'll do a little bit of networking. So those who can stick around, Jason, I know it's super late for you, so don't feel obligated, but it would be great for you to do so. I'll join the tables as well to get some feedback from everyone. But like, yeah, Jason, any final words for the audience here? You still have about 140 people live. I think at one point we hit 255, so we're at the tail end of this. But yeah, any last word? Pieces of advice for the team?

Yeah, just look, thanks for coming. This is a very important part of your founder journey. You know, most of you won't have finance or legal backgrounds. So do take the time to understand your cap table well. It is a critically important part of your journey. Like, I can't overstate that. You've got to use your equity when you raise. You've got to, you know, you want to look good to your investors. You want to make sure you don't dilute yourself too much. And you want to make sure your employees, your team have equity and come on this great journey with you. And then when you exit your company down the track, everybody has a massive outcome. So take the time to learn this stuff. Very good on you for being here. And yeah, you can hit me up. So yeah, jump on this, the office hours. So the Founder Institute team are going to share a link. It is very complicated stuff. I've tried to simplify it as much as I could, but like, do take the opportunity to come and ask questions and get this right. Um, in a very short amount of time, I can probably help you solve something that might take you a while to, you know, to work out. So, um, lean on us as much as you can. We're here to help.

Perfect. Yeah, everyone, the chat— it's pinned on the chat, the link. You'll get the link also after. But appreciate you all sticking around. Um, we'll wrap things up here. Uh, you know, we do these webinars pretty frequently make sure you check our events page, fi.co/events. I think we do 2, 3 of these events a week. We're just really trying to provide the best content and make sure that everyone's prepared for their founder journey. And obviously, whenever you're ready, you can go join up for one of our core programs as well. All right, so let's wrap things up here. Jason, thank you for taking the time. Hopefully we see you on the tables, but everyone else, we'll see you on the networking tables. Feel free to stick around. All right, thank you. Take care.