4 ms·

Here's how the model often works (not saying it's a good idea, but pretty common): Pool increase => total number of shares => price per share (because the valua

Here's how the model often works (not saying it's a good idea, but pretty common): Pool increase => total number of shares => price per share (because the valuation is fixed) => number of shares investor is getting => pool increase necessary to maintain a fixed percentage.

harryh 13y ago
None of that should result in circular references on a spreadsheet. Incidentally, this SS makes it clear that you are negotiating over essentially 3 numbers (as price per share doesn't matter) in a first investment. And those #s don't change with whether the option pool is created pre or post investment, that just changes how you talk about them a bit. EDIT: See, like this https://docs.google.com/spreadsheet/ccc?key=0AjHAG0M-0vxXdGtSVFZtZHRPRl9nNENIOHFYemlad1E#gid=0 https://docs.google.com/spreadsheet/ccc?key=0AjHAG0M-0vxXdGt...
- andrewfong 13y ago
  I don't quite understand your spreadsheet. Founder shares are usually purchased well before the investment, but here you're calculating them as a function of the total number of shares. Because the number of founder shares is already established, price per share absolutely matters. EDIT: That is, price per share isn't an independent variable (it can be calculated as a function of the other variables) -- but it can't be arbitrarily set.
  - harryh 13y ago
    There are two scenarios: 1) The founders haven't been working especially long on the company and haven't incorporated (maybe they have an LLC, but not a C Corp). In this case it actually is pretty common for the # of founder shares to be set at the time of investment. Founders pay far less (really just a token amount like $.01) than investors. In this case the price per share is independent (and kind of meaningless. Do you want 3.5M shares worth $1 each, or 35M shares worth $.10 each. Though there are psychological norms people tend to stick to). 2) The founders have been working on the company for a while and incorporated well before taking investment. This is the scenario you describe. I added a 2nd sheet ("scenario 2") to cover this case. As you can see it also contains no circular references. As you said price per share is no longer arbitrary here as it's fixed by the # of founder shares created pre-funding. Sometimes you might do a split (or reverse split) here to adjust the price per share to the same psychological norms as above.

harryh 13y ago

None of that should result in circular references on a spreadsheet. Incidentally, this SS makes it clear that you are negotiating over essentially 3 numbers (as price per share doesn't matter) in a first investment. And those #s don't change with whether the option pool is created pre or post investment, that just changes how you talk about them a bit. EDIT: See, like this https://docs.google.com/spreadsheet/ccc?key=0AjHAG0M-0vxXdGtSVFZtZHRPRl9nNENIOHFYemlad1E#gid=0 https://docs.google.com/spreadsheet/ccc?key=0AjHAG0M-0vxXdGt...

andrewfong 13y ago
I don't quite understand your spreadsheet. Founder shares are usually purchased well before the investment, but here you're calculating them as a function of the total number of shares. Because the number of founder shares is already established, price per share absolutely matters. EDIT: That is, price per share isn't an independent variable (it can be calculated as a function of the other variables) -- but it can't be arbitrarily set.
- harryh 13y ago
  There are two scenarios: 1) The founders haven't been working especially long on the company and haven't incorporated (maybe they have an LLC, but not a C Corp). In this case it actually is pretty common for the # of founder shares to be set at the time of investment. Founders pay far less (really just a token amount like $.01) than investors. In this case the price per share is independent (and kind of meaningless. Do you want 3.5M shares worth $1 each, or 35M shares worth $.10 each. Though there are psychological norms people tend to stick to). 2) The founders have been working on the company for a while and incorporated well before taking investment. This is the scenario you describe. I added a 2nd sheet ("scenario 2") to cover this case. As you can see it also contains no circular references. As you said price per share is no longer arbitrary here as it's fixed by the # of founder shares created pre-funding. Sometimes you might do a split (or reverse split) here to adjust the price per share to the same psychological norms as above.