Visualizing your plan with Shoobx | Jason Furtado

Can we just look up any company's certificate of incorporation or corporate bylaws? Is that public? The charters, I don't think they list them on the website, but you can get to them if you pay Delaware money. So it is something that's available that you can get it, but you have to pay for it. When you do those foreign registrations in different states, You actually provide— they ask for certain information. Some states, when you do a foreign registration, some of the core data is actually exposed. You can search for it on the web. So you can figure out— you may not be able to get access to the full certificate of incorporation, but you might be able to know who the directors are. This is how people research shell companies and try to trace back who owns what. They'll generally look at these filings that are public record that you can get access to. But it's a limited amount of information that's available on the web as opposed to the full text of their charter. So from here, it's— you're signing some documents, you pay a filing fee to Delaware. Shoebox would do the filing for you. There are other folks that will help you actually file the charter itself. And within a few days, or depending on how much you want to pay, It can come faster. You have a company and you're in business. But it's important to recognize just because you've incorporated, now there is an entity that you could start entering into agreements with other folks, you really want to get the founding team to sign— to basically assign their IP to the company. You want to get whoever is involved to be bought in that this is the company, Here's the equity breakdown. This is how we're going to do this. Too many companies, they operate for a year. It's like, oh, let's not have that conversation. Let's wait a year. It's not real yet. Let's not worry about it. A year later, generally the conversation is not as easy as it would have been if you guys just talked about it up front. Because now people have skin in the game. They want to get more equity than maybe they actually deserve. Generally, it's easier to do it in the earliest stages, just being frank and honest with each other. each other about what the contribution is going to look like and deal with it at that point. So, let's talk about— let's say you've granted initial founder equity. You've hired a couple folks. What does the world look like for you? Where's the one I want? Let's transition companies. Slide 5. This is our demo instance. We set up fake companies so you have Dinesh and Richard Hendricks and all that good stuff. If you're looking at your dashboard in Shoebox, and ideally this information is available to you in some way as you build out your company, one of the pieces that you're going to want to be familiar with is your cap table. That again defines who owns what. You may have preferred holders. And one important thing, everyone's equity should be backed by documents. Another thing I see people make mistakes about is like, oh, I have an offer letter. I granted them equity. No, you didn't. That's just a promise. So there are agreements attached to equity. There are things that need to be approved. There are board consents that need to be signed. There's a bunch of documentation that needs to get done. Your attorney will be happy to do that stuff for you. But there are platforms that can help save you some money and make it a little bit more efficient for you to handle that. At the end of the day though, you want to know who owns what in your company. You should understand your cap table. I always like to make the example like if you're going to spend nights and weekends, blood, sweat, and tears building your company and getting it off the ground, the last position that you want to be in is a couple years down the road Learning about what you actually own. Ideally, you have a decent understanding of what it means to own some number of shares. What does the percentage of the company actually mean? And especially when you start talking about working with investors, there are terms like a liquidation preference that make sure that they're going to be paid out first. So, what I mean by that, a little example somewhere in here. There we go. So, here's an example company and they have raised some capital. Say they somehow raised $6 million in their Series A. One thing to keep in mind is that class of stock may have a liquidation preference. And what that means is before the common holders, which are generally the founders and the employees, get any money whatsoever, They're going to get theirs. So, in this case, up until some number of millions of dollars, so in this case it's a 2x liquidation preference, the common stockholders won't get anything. So, why do investors do this? Twofold. One, they want to protect themselves against the company not doing so hot. Another reason to do that is to motivate the founders. They want you to want to make the big exit that they want, right? They've told their LPs, that this company is going to be worth $1 billion. You're going to get 10x your money, 100x your money. In the same way that you'll be pitching to investors about the great business opportunity that exists, the VCs are pitching to their limited partners about the types of companies that they'll be investing in. As part of that, they want to make sure that all the founders in those companies are super motivated to provide that ridiculously amazing return. So one way to do that is basically to say, look, you don't get any money until you get over this threshold. And then when that happens, then we'll collaborate together. We'll actually— the preferred stockholders convert their shares to common shares like anyone else, and they get their slice of the pie based on the number of common shares that they own. But this is a concept that not every early-stage founder really understands completely. So, just because the cap table says that you own 50% of the company, you won't see any money in relation to that 50% until you get above that liquidation preference. So, tools like Shoebox and other equity management tools will help you visualize this, help you understand, okay, what's the break-even point? When does— when do the common holders get in the money? How much do I have to exit at before I'm going to be happy with my exit? And then you can also see like maybe Richard's the founder. Okay, at this exit amount, Richard's getting paid $20 million. Okay, that's a pretty good exit. Maybe I'm cool with that. If I could exit tomorrow, that might be a good exit. As I raise more capital and I start thinking about my next round of funding or how much capital I'm going to need for my business to really be successful, it's important to start to think about how all this stuff bundles together. All things that come up as you grow. But it's important to lay the foundation, understand the tools that can help you make sure that you're in the best position possible. Another piece as you start thinking about your next round of investment, this is kind of the pie slice. Who owns what in the company? And this is all about dilution. So when you take additional capital, you're basically printing more money and your slice of the pie gets smaller. But your slice of the pie is now worth more, right? They value your company, and based on the valuation you get, that defines how much they're going to pay for their stock and what percentage of the company they own. So, it's all kind of a math equation that is important for you to have a good understanding of as you start to get closer to that great future equity financing when you get that Series A that you're going to make that great press release about. Thank you. Ideally, you understand these concepts well enough to be able to take advantage of that. And that's something you can talk about with your investors. Again, lots of blog posts written about this stuff. There are calculators on the internet. There are tools like Shoebox to help you get your head around this stuff. And you don't— you can do it in bits and pieces as you grow. But it's important to at least understand this stuff is out there. You want to understand it. And as you lead up or think about raising capital, make sure you become conversant. in the basics of what this stuff means. If you're going to be raising a SAFE, it's important to understand what the terms are that you're agreeing to. If there's a discount on the price per share of that future investment round, what's that discount look like? How much are you going to be raising? Are those investors going to care? Those are all pieces of this puzzle that go into fundraising. And a lot of founders, as the company grows, spend a lot of their time fundraising and trying to think about different scenarios, And create flexibility on how they might negotiate that future round. So, wanted to at least expose you to these topics, give you a sense as to how you might be able to approach these problems leveraging technology to help you manage the complexity as opposed to always having to get spoon-fed from your attorney. There are tools out there. Take advantage of them. Make sure that the attorneys you work with are comfortable leveraging technology so they can be efficient with your resources, and take a look at platforms like something like Shoebox or some of the other tools that are out there to help you manage your organization.