What is a bad cap table?

So, what does a broken cap table actually refer to? Typically, it means that shareholding of those who bring the most value to a company is disproportionately smaller to those who do not. Issues can naturally arise on both founders’ and investors’ side and also at different stages of a company’s life cycle.

How much equity should founders have at Series A?

As a rule, independent startup advisors get up to 5\% of shares (or no equity at all). Investors claim 20-30\% of startup shares, while founders should have over 60\% in total.

What is full ratchet anti-dilution?

A full ratchet is an anti-dilution provision that applies the lowest sale price as the adjusted option price or conversion ratio for existing shareholders. It protects early investors by ensuring they are compensated for any dilution in their ownership caused by future rounds of fundraising.

What is a clean cap table?

A clean cap table means that it is up-to-date for the latest transactions, accurately reflects company ownership, and shows options available to employees or capital providers. All this information needs to be quickly assessed to understand shares authorized, issued, and outstanding.

What is early-stage investing?

Early-stage investing funds the first three stages of a company’s development. It is divided into three distinct funding types: Seed funding (seed capital)—money provided to help an entrepreneur start a business. Start-up funding —money used to help a company develop products and start marketing those products.

Is it bad to dilute equity too early in a startup?

Your startup investors have just made five times their money. The biggest concern for all investors, and to a great extent the entrepreneur, is equity dilution. If you dilute the equity too much and too early, then later investors have no incentive to invest.

Why don’t more start-ups get funding?

Because there is more risk associated with new companies that don’t yet have a foothold in the marketplace, not all investors are inclined to put money into them. When a start-up company matures and becomes a late-stage company it can seek funding from late-stage investors.

How much runway do angel investors need for a startup?

This includes the cost of development, hiring (and retaining) key talent and acquiring customers (marketing). This runway can vary from 12 to 18 months, but the latter is widely accepted by most angel investors. Also, remember the number-one rule of investors: do more with less.