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Startups, investors & how to decide who owns what: 5 steps to master your cap table

When accepting an investment, entrepreneurs must consider not only how far and how fast they can drive their business with the committed capital, but also how the capital structure of the company will look the day after. Ownership provides its founders with an inventive to push the company forward and ensure there isn’t a strong […]

The post Startups, investors & how to decide who owns what: 5 steps to master your cap table appeared first on iAngels.

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When accepting an investment, entrepreneurs must consider not only how far and how fast they can drive their business with the committed capital, but also how the capital structure of the company will look the day after. Ownership provides its founders with an inventive to push the company forward and ensure there isn’t a strong force pulling the company in another direction. Here are five steps to master your cap table.

Dilution per round

A round of finance usually dictates dilution of 20-25 percent to all shareholders, including founders. A good rule of thumb is that investors are looking to gain that share in the company in return for their investment. This implies the valuation of the company based on a supply demand matrix. When negotiating an investment deal, consider upping the valuation to a point where it still reflects the true value of the company, is something the investors can be happy with in terms of returns performance potential, and yet accommodates this amount of dilution.

Managing Oversubscription

It often happens that a company ends up raising more than it intended. It is probably for the best because when planning ahead, having a cushion is a very good thing.

However, if by the end of that round, the dilution amounts to almost 40 percent, it could be that the company was undervalued and the founders significantly diluted. It would be harder for them to stay incentivised through additional rounds of finance and if the board of directors decides to accept that investment, it needs to consider what it means for the founding team in the long run. If there is no willingness, don’t take the money.

Balance of Power

When considering whether to accept additional investment from existing investors versus adding new investors onto the cap table, the founders should examine how the cap table forces are going to behave post investment. It is critical to have current investors participate in the round as it is a signal for new investors that they continue to believe in the company and are maintaining their position.

New investors provide a seal of approval to the financing round, balance out the cap table and the board of directors and allow for additional exposure to new ideas, new markets and new business. As the company matures, this balance of power in the board of directors will be significant when making executive decisions. Many times a single investor in the company holds much more than each of the founders or all the founders combined. This situation has to be managed so the founders do not feel loss of control and loss of incentive.

Ambivalence between exit outcomes

Founders that hold ten percent in the company and face yet another financing round might find themselves ambivalent between remaining with ten percent ownership in a company worth $50m and raising more capital to hold five percent in a company worth $100m.

This jump in valuation would entail working very hard with a similar outcome for the founder. Investors might have other considerations and would like to build large companies. When this conflict appears, the founders must receive additional incentive to be able to sustain. Should the solution require a change of management, there would be significant effort and shift in focus for the whole company. Founders are not always happy to step aside and make room for a professional CEO who can take the company forward. Not to mention that a rockstar CEO with a track record would require a significant equity stake to take the job to begin with, a step that may as well dilute everyone even further.

Secondary room for air

Some investors feel strongly against providing liquidity to the founders before an exit because they feel they would not be as “hungry” to make the company succeed. Others feel that this room for air would allow them the runway they need to sustain longer, as they don’t have to worry about making ends meet or pay a huge mortgage while their company is worth millions on paper. These days, more and more companies are encouraging secondary offerings not only for the founders but even for employees, to keep them incentivised and for the full compensation package to remain competitive in a market where engineers are expensive and talent highly valued.

Taking ownership into account can definitely benefit the founding team. Second and third time entrepreneurs are able to position themselves better in light of their experiences and their cap tables look completely different than first timers, maintaining a control position in the company well into growth stages. Together with your investors, you can consider ownership as an important parameter of an equity investment offer. Make sure to calculate a few steps ahead into future rounds to make the most of the road ahead. Good luck.

This article originally appeared on TechWorld

Source: https://www.iangels.com/2015/12/startups-investors-how-to-decide-who-owns-what-5-steps-to-master-your-cap-table/

Private Equity

20VC: Sequoia’s Roelof Botha on His Biggest Lessons Working Alongside Don Valentine, Mike Moritz and Doug Leone, Leading Sequoia’s US Business and What Sequoia Do To Retain Their Edge at the Top & The Crucible Moments That Define Startup Success

Roleof Botha is a Partner @ Sequoia Capital, one of the world’s leading venture firms with a portfolio including the likes of Airbnb, Instacart, Stripe, UiPath, Zoom, the list goes on. As for Roelof, at Sequoia he has led rounds into the likes of YouTube, Instagram, Eventbrite, Square, MongoDB, 23andMe and Unity Technologies to name a few. Before joining the

The post 20VC: Sequoia’s Roelof Botha on His Biggest Lessons Working Alongside Don Valentine, Mike Moritz and Doug Leone, Leading Sequoia’s US Business and What Sequoia Do To Retain Their Edge at the Top & The Crucible Moments That Define Startup Success appeared first on The Twenty Minute VC.

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Roleof Botha is a Partner @ Sequoia Capital, one of the world’s leading venture firms with a portfolio including the likes of Airbnb, Instacart, Stripe, UiPath, Zoom, the list goes on. As for Roelof, at Sequoia he has led rounds into the likes of YouTube, Instagram, Eventbrite, Square, MongoDB, 23andMe and Unity Technologies to name a few. Before joining the world of venture, Roelof was the CFO @ Paypal playing a key role in their hyper-growth from 2000-2003.

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In Today’s Episode You Will Learn:

1.) How did Roelof go from actuary in South Africa to CFO @ Paypal? What were his biggest lessons from seeing Paypal burn $10M per month? How did Paypal lead to his joining Sequoia as a Partner?

2.) Market Evaluation: Does Roelof agree that the market is crazy today? How does today compare to prior vintages? How does Roelof assess the compression of fundraising timelines? With compressed timelines, how does he build relationships of trust with founders?

3.) Founder Evaluation: What were Roelof’s lessons on founder assessment from Don Valentine? What matrix did Don teach Roelof to assess founders on? How does Roelof feel about the rise of competitive rounds? When should founders take them vs remain heads down on execution?

4.) Investment Mentality: How did Roelof prevent becoming too confident when early investments went well? How does Roelof prevent relying on past failures as a reason for turning down opportunities today? What can investors do to retain a very flexible mind? Why does Roelof believe you are only as good as your next investment?

5.) Sequoia’s Edge: How does Roloef think about what it takes for Sequoia to retain it’s edge at the top? How does Roloef measure the success of the Sequoia scout program? How did they structure it? How has the structure changed? What do they plan to do moving forward?

6.) Board Membership: How would Roloef evaluate his current style of board membership? How has that style changed over time? What elements did he find challenging? What advice would Roelof give to new board members adopting their first board seats?

Items Mentioned In Today’s Show:

Roelof’s Favourite Book: Man’s Search For Meaning

Roelof’s Most Recent Investment: mmhmm

As always you can follow Harry and The Twenty Minute VC on Twitter here!

Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Source: https://thetwentyminutevc.com/roelofbotha/

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Private Equity

Private equity investor Centerbridge Partners backs Syncapay’s acquisition of Wirecard North America

From: FinTech Global Syncapay has announced that it has bought Wirecard North America, marking another page in the story of the collapse of the scandal-ridden former FinTech giant. Wirecard imploded this summer after a suspected multi-billion dollar fraud was unearthed. Since then the company, which was once hailed as one of Germany’s biggest FinTech success […]

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From: FinTech Global
Syncapay has announced that it has bought Wirecard North America, marking another page in the story

Source: https://www.altassets.net/private-equity-news/by-news-type/deal-news/private-equity-investor-centerbridge-partners-backs-syncapays-acquisition-of-wirecard-north-america.html

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Private Equity

Gulf Capital backs CWB as part of $60mln IP platform build

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The post Gulf Capital backs CWB as part of mln IP platform build first appeared on https://africacapitaldigest.com.

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