A younger version of me and a younger version of this Youtube channel started this series called Startup Funding Explained.
We went through a theoretical company’s story while analyzing how the cap table evolved through various rounds of funding. Make sure to watch Parts 1 through 3 if you want to get a grip on that.
Watch Startup Funding Explained Part I-III
But if you are only in for the good stuff, that’s OK. This article will analyze a few exit scenarios for that theoretical company and how much money everyone does, or does not make.
BTW, a lot of the topics covered here were way beyond my expertise, Steve Barsh helped us put these estimations together. Make sure to check out his video on Startup Exits.
Let’s look at the last version of the cap table:
- Founder 1 4,000,000 33.96%
- Founder 2 1,500,000 12.74%
- Friends & Family Investor 2,000,000 16.98%
- Employee 1 (OP1) 250,000 2.12%
- Employee 2 (OP2) 250,000 2.12%
- Convertible Note Investor 500,000 4.25%
- Option Pool #2 500,000 4.25%
- Series A Investors 2,777,778 23.58%
In a nutshell, here’s where the company is at,
- Raised a Seed Round of funding through a Convertible Note.
- Raised a Series A Round of Funding, which valued the company at $10MM.
- The investors on the Series A negotiated a liquidation preference that guarantees them 2x the capital invested.
- A Series A round probably had additional terms, but we are trying to keep it simple for Youtube purposes.
- We also had two option pools, the first one with a Strike price per share of $0.0312500 and the second one with a Strike price per share of $1.
