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The Example Planning Cap Table

As promised in a previous blog I have enclosed and example of a cap chart that could be used in planning out the equity and dilution of ownership over the life of a company.


Please click to enlarge

This approach includes two features that I find very useful in my new circumstances operating in Australia but ultimately doing market entry in the US.

In summary this cap table shows the following key events:

  • In the initial inception of the company I sell 15% of the stock in a holding company to obtain 600k in operating cash for the market entry team to live off while they are raising cash for their own modified business plan. This assumes an angel round valuation at $4mill. I have done start-ups ranging from $900k to $8mill as start-up angel valuations in the past.
  • Next I may give 3% as a sign on equity to an experienced CEO who has taken a similar product to market entry. The CEO will also have performance equity bonuses ranging from an additional 5% for completing the raise and a total of 15% for completing a successful market entry with the company being in the black at a valuation of $25mill.
  • An additional 9% is allocated to other key staff that the CEO needs to hire and will require an equity position to participate.
  • After round 1 funding the round investors will be given just under 30% of the shares in the company for a $2mill investment.
  • By the time the CEO and team members get their performance equity totalling 15% for the CEO and 9% for other key staff, the founder holding company has been diluted to 51% ownership and the round 1 investors diluted from 30% down to 25%.

Planning out dilution this way helps you as a founder manage your business plan, valuation and equity positions to ensure that you know exactly the maximum equity you can sell to ensure you do not lose control of the company during the business building process.

Including angel investors in a parent holding company allows them to get maximum return on their investment without diluting your ability to control the company at a later date since they are not voting as a shareholder in the market entry company.

If you think that round 1 investors will need more than 30% of the company and you are worried that the you may lose control of the company if the CEO votes with the round 1 investors then you can negotiate to place the CEOs holdings inside the parent holding coampany where they can still get a high percentage return on the companies success but their voting rights are controlled by you as the majority owner of the parent holding company.

Something to think about.

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