Seed Capital and Venture Capital Assumptions
Q: Can you please explain how equity assumptions are entered into the Startup Financial Model?
A: The Startup Financial Model allows you to enter equity assumptions - from founder's shares to options to the typical stages of venture capital - and automatically builds and calculates a high-level Capitalization and Ownership Table as well as an Investor Return Analysis on the Summary Report.
The model allows you to enter the following equity assumptions for the month you anticipate receiving the funding or executing the transaction as follows:
Founder’s equity – the number of founder’s shares for all founder’s combined
Pre-seed employee options – the number of all options that are granted as part of the “pre-money” valuation prior to a seed round of common equity
Seed/Angel investment – the amount of common equity investment and number of shares sold (you can enter up to three different seed rounds)
Convertible Debt - enter a convertible debt investment that automatically converts into the Series A round (more...)
Post-seed employee options – the number of all options that are granted after a seed round which would dilute the seed round investors
Venture Capital Series A investment – the amount of preferred equity investment and number of shares sold and the liquidation preference multiple (the liquidation preference is automatically calculated for you in the waterfall on the Summary report)
Post-Series A employee options – the number of all options that are granted after a Series A venture capital round which would dilute the investors
Venture Capital Series B investment – the amount of preferred equity investment and number of shares sold and the liquidation preference multiple (the liquidation preference is automatically calculated for you in the waterfall on the Summary report)
Post-Series B employee options – the number of all options that are granted after a Series A venture capital round which would dilute the investors
Exit Multiple Type and Amount – in order to calculate the return analysis and waterfall, the type of exit multiple expected (Revenue or EBITDA) is selected as well as the anticipated amount of that multiple. The model will then automatically model the Enterprise Value, Equity Value, and the waterfall for the two classes of equity (Common and Preferred) as well as the management team consisting of the founders and optionees
The model is very powerful, but the inputs are quick and simple as shown below:
Note that you can also enter debt assumptions in the separate Debt section if you anticipate using debt capitalization as well.