Share what you know with millions of people
Focus is the best place to turn what you know into remarkable content
0
In start-up land, what does a reasonable cap table look like vs. a poor cap table?
Both from the entrepreneur's perspective? From the VC's perspective?
Events
- Dos and Don'ts of Small Business Marketing May 29 @ 11 am PT
- Lead Nurturing 202: The Next Generation May 31 @ 11 am PT
- The Tricks to Paid Media June 6 @ 11 am PT
- Display Advertising for Brand Awareness June 20 @ 11 am PT
Related Activity
2 Answers
A lot of ways to answer this question, but let me add one very simple rule - a capitalization table with "clean" terms in each round is the simplest and best for the entrepreneur. The opposite of this would be one or more rounds of investment that have preferred equity with liquidation preference, participation or other creative structures that can make life complicated in the long run. From an investor standpoint, adding terms like these into an investment round can help increase returns (which is why they ask for them). For those looking for more depth on this subject, the book "Term Sheets and Valuations" by Alex Wilmerding is a good read.
I think there are three things to look for in properly administered equity plans
1. Distribution of equity among investors. If a company has five investors yet the majority of the company is owned by one, the voices of the other investors may not be heard.
2. Do the investors carry a board seat. Investors you have board seats may provide guidance as well as a check against management.
3.. Does the management team have an equity stake as the people managing a business (and thus the investors funds) should be compensated to make decisions that are in the best interests of the business.
Answer This Question