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As Finance Fridays continues, we are introducing the concept of the CapTable. This week they set out to create their captable and hire a CTO. Rather, it gets recorded in a document called the Capitalization Table (or “CapTable”), which shows the ownership stake each person or entity has in the business.
This states how the proceeds from a sale or dissolution of the company will be distributed. How VC’s Calculate Valuation : We walked through a standard deal where you raise $1 million at a $3 million pre-money valuation leading to a $4 million post money valuation.
The total value of these deals might look higher than when a tech company makes an acquihire but the premium tends to go to retention rather than the captable (especially since (a) the acquirer might not be seen as an ‘attractive’ place to work and (b) there’s assumption of less equity upside post-acquisition).
First – they achieved a significantly better tax outcome on the distribution of proceeds. This helped them with a number of things. More importantly, this handily resulted in their ability to completely wipe out the common ownership in the business. That’s right. Aren’t there lawyers involved? How could they let this happen?
“Admirer from outside of the captable” is how I approached Kieran Snyder , Cofounder of Textio. Like everyone else, we went distributed overnight in March 2020. That is to say, I DMed her on Twitter in 2016, impressed by the work she was doing but without a preexisting relationship.
Flexible VCs also offer investors some of the same advantages as RBI: Clear return expectations : The return cap is a stated multiple of the investment, typically 2-5x. . Flexible VC creates early liquidity which can be either reinvested or distributed to LPs. Early liquidity. Equity VC is a “get rich slow” business.
Then they had a five-year P&L statement, balance sheet, cash flow and captable. This includes how the product gets distributed to your customers and how money flows back into your company. It was an exquisitely crafted plan. Finally, they took the plan and boiled it down to 15 of the prettiest slides you ever saw.
On the other hand, they could be the opposite—much more focused on near-term cash distributions than long-term equity appreciation. This is a business and the goal should be to get the best people at every position, regardless of their position on the captable. I get that you want to play baseball but do that on your own time.
This exacerbated the first issue and meant that anyone considering a loan needed to rush to apply and many companies did so without the space and time to think through whether it made sense for them. Exactly what this means isn’t clear.
Investors expect them, they help protect your captable, and they ensure that equity is fairly distributed over time. Vesting schedules arent just a formalitytheyre a fundamental part of building a strong, aligned founding team.
VCs who swear publicly that they’ll never make an investment with less than 20% ownership show up on captables in the teens… the 20% pronouncements are just posturing for negotiation. People are accustomed to normal distributions, as they’re both intuitive and commonplace.
645 Ventures released a captable simulator to help level the playing field. Carta , Captable.io , Certent , EquityEffect , and ShareWorks by Morgan Stanley track private company captables. . Some technology vendors are providing options to limit distribution of confidential information from GP reports.
We loved the product, but weren’t convinced it would get much distribution quickly. Carta went on to become the standard for captable management and is a unicorn many times over. . And, we passed on the opportunity to invest every single time as we were too hung up on their dependency on AirBnB for distribution.
It was a benefit to employees and a slight value transfer from equity holders to option holders (generally speaking in M&A transactions the value of the aggregate option exercise ends up allocated across the rest of the captable).
First – they achieved a significantly better tax outcome on the distribution of proceeds. This helped them with a number of things. More importantly, this handily resulted in their ability to completely wipe out the common ownership in the business. That’s right. Aren’t there lawyers involved? How could they let this happen?
In these cases, the equation is basically unsolvable and doing a round with a venture investor risks entangling the founders in endless meetings and conference calls with their angel backers to find a compromise that will allow them essentially to rewrite their captable.
Ramanan Raghavendran, Managing Partner at Amasia , explains how they’re managing their processes: “At Amasia, our distributed presence on both sides of the Pacific mandates the use of technology to be effective, timely and coordinated. Some firms use iLevel or Qualtrics to assist reporting requirements.
However, as we’ve seen from recent salient stories , these can be ephemeral and don’t end up mattering in the end… they’re really just approximations based on the market for buying a piece of a company’s captable, not buying the whole thing or making it public. Venture is a field with a power-law distribution of outcomes.
Eventually, I joined Jenny Lefcourt in the initiative called Founders for Change, where we’re amplifying the voices of the founders who are demanding greater representation and diversity not only within their organization, their captable, and their board rooms, but also in terms of the makeup of all of these organizations.
They then, in turn, brought that software into their small businesses, their sub-groups within companies, and provided the kindling of distribution within work-related networks. While that consumer window was no longer opening, individual consumers began discovering new software tools to make themselves more productive.
Here the focus is on Pink Stuff, a British cleaning paste, which was #CleanTok mainstreamed to a quadrupling of revenue ($125m annually) and distribution to 55 countries. Many times we’ll never know, but the random products that end up popping because of a TikTok trend are always pretty fascinating anthropological stories.
Or ask your captable who is the best “XYZ” that they know and give them some skin in the game. You can even present it as part of their ‘comp’ — an equity grant they have ability to distribute (with your approval). If there’s someone in industry she really admires but doesn’t yet know, reach out to them on her behalf.
You can no longer simply look at the captable and estimate your return. Cash distributions are what matter at the end of the day, bug big paper gains still make for good fundraising pitches. The adjustment does not happen now, it will happen later. Dirty term sheets are a massive problem for two reasons.
Besides being “busy doing great deals and distributing cash to your LPs”, what are they’re actually doing to make that happen? That’s how it feels when your hot deal from two years ago winds up running low on cash and gets into a pay-to-play round that wipes out the captable. But I thought I was good!?” You have outcomes.
Is it possible to maintain and independent attitude and ethos with an outside investor on your captable? Tho we plan to have some in person time required, much of the program content and network is designed to be distributed and online. . Would an early focus on cashflow and sustainability v.
I can vouch for his genuine optimism Hunter Walk: You got to work with a number of different VCs on your captable for Anchor. However, Apple had repeatedly threatened to cut off our distribution (despite our many attempts to partner with them), and their threats had grown more immediate and credible.
Can institutions be totally distributed or should they be rooted and loyal to a certain community or geography? And in this crypto algorithm, they said, well, since we're all making this distributed ledger, we now have provably unique digital items that I can send to you, Eric. Do we need more regulation in this area or less?
Foundry Group, investing primarily in “ Software and Internet ”, follows six major themes, e.g., Human Computer Interaction (HCI) or Distribution. “Index the Best” – Only invest in companies that have brand name firms on the captable and/or as leads. 7) Stage-defined funds.
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