Tue, 18 May 2021
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
It’s important for investors to see your cap table in its fully diluted form.
The total number of shares issued or outstanding will determine the value of each share from which the shareholder can determine their percent ownership.
For startups, issued shares and outstanding shares are the same thing.
Authorized shares do not apply.
In addition to the outstanding shares, you’ll need to add options, convertible notes, restricted stock, and warrants.
Options granted to employees must be counted.
You’ll need to include those that have been exercised and those that have not yet been exercised.
Some unexercised options may never turn into shares as the granted options expired unused.
Expired options unused will require an update to the cap table.
Next, you’ll need to convert the convertible notes into shares.
Conversion to equity happens either on a follow-on fundraise, or at the maturity of the note.
Here the convertible note will increase the number of shares on the cap table based on the investment and valuation cap of the note.
You’ll need to add restricted stock which is often used instead of options for its tax benefits.
Finally, you’ll need to add the warrants. These are options to buy stock at a specified price during a specified period.
Just like options, not all warrants may end up being used, but in a fully diluted cap table show them as if they were exercised.
Once the warrant expires unused, then it comes off the cap table.
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