One of the more contentious things in the negotiation between an entrepreneur and a VC over a financing, particularly an early stage financing, is the inclusion of an option pool in the pre-money valuation. As my friend Mark Pincus likes to say, “it’s just another way to lower the price”. I’ll accept that critique. And ...
One of the common areas of misunderstanding, and therefore conflict, in financing negotiations has to do with the relationship between the pre-money valuation and the option pool. Investors want the company to have an adequate option pool for future hiring and it is customary to include the pool in the pre-money valuation. Some entrepreneurs see ...
This is a Youtube video explanation of a cap (capitalization) table example that is available online. It may take a while get your head around the terminology and concepts involving the option pool and note conversion, and their impact on valuation. It is worth taking time to understand this if you want to see how ...
A cap table shows you who owns what in your company. It calculates how the option pool shuffle and seed debt lower your Series A share price. This article includes a spreadsheet you can use to build your very own cap table.
Summary: Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation.
