#Whats onstage plus#
a new series of preferred shares (creation of a new class, often reflected in a new column on the cap table for clarity, plus new line items for the new investors) Selling new shares of a new security, e.g. common shares (new line item for that shareholder, reduction in pool of authorized but unissued shares) Selling new shares of an existing security, e.g. Here is a list of the events that will result in a change to the cap table due to raising either equity or debt: In either case, this information should be recorded on the cap table. When capital is raised, it can take the form of either equity (partial ownership of the company) or convertible debt or straight debt with warrants (lender). Most early stage companies raise capital from a variety of sources over time including friends, family, angels and VCs. an investor or the company (a boost in shares issued and a new line item for that investor) Terminating unvested options, unvested restricted share awards or expired warrants when an individual’s service to the company ends before options are vested (removal of an option line item, and typically a return of those shares to the pool)Īny transfer of shares between an individual and another entity e.g. employee, director, advisor (new line item for the options, reduction in size of remaining pool)Įxercising of options or warrants by an individual (reduction of their option listing, increase in common stockholder list and common shares outstanding) Issuing an option grant, restricted share award or warrant to an individual, e.g.
Increasing the size of the option pool (more authorized shares, increase in the pool line item) Here are some examples of the employee, director and advisor events that will result in a change to or notation on the cap table:Įstablishing an option pool (more authorized shares if insufficient shares authorized, new line item on the cap table)
Option pools vary in size, but are typically designed to represent somewhere between 5% and 25% of the total outstanding shares of the company. I like to think of changes to the cap table occurring based on two different groups: 1) New Employees, Directors and Advisors and 2) New Investors (and if they are given securities such as warrants, Creditors).Īs the company adds employees, directors and advisors, it will typically create and grant options, restricted stock awards or warrants from an “option pool” as a way to attract, incentivize and retain those people. Over time the cap table will necessarily become more complex. At that time, the cap table will have some common shares issued to the founders, and that’s it. When a company is first incorporated, the cap table is pretty simple. How do these cap tables evolve over time? What events result in a change to an early stage company’s cap table? In Part II we'll take a closer look at how cap tables evolve over time, which deal terms can have the biggest affect, and the purpose of a waterfall analysis for early stage investors. In Part I of this article we gave an overview of capitalization tables and the key terms used in cap table analysis that every investor must understand: Valuations, Security Types and Share Counts.
#Whats onstage download#
To learn more about the financial mechanics of early stage investing, download this free eBook today Angel Investing by the Numbers: Valuation, Capitalization, Portfolio Construction and Startup Economics or purchase our books at. Note: This article is the third in an ongoing series on valuation and capitalization.
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