This is the 14th and final part of the Pro Cap Table training course is on preference shares. In this series we go through the basics you need to know, then work sheet by sheet so you know how to make a seriously kick ass cap table.
There are 14 parts:
- What is a cap table and other important questions
- Cap table dilution step by step example
- Cap table dilution math
- Starting the cap table (The drop down menus we need)
- Shareholders sheet
- Deal calculations
- The cap table sheet
- The assumptions sheet
- Individual shareholder returns sheet
- Returns waterfall calculation
- The ESOP sheet
- The Common sheet
- The convertible notes and warrants sheet
- The preference shares sheets (From Series A to I)
You can join the course and get these sent straight to your mail box here:
Let’s get into the meat, your big preference shares rounds. Note: anything that is common… goes in the COMMON sheet.
When I say series-A to you that means something… like yay, they got to series-A!
It actually doesn’t mean that. Series is just a legal term for a class of share. You can have series-AAA if you like. So for the purposes of this model, I allow you to have up to 9 classes of shares. So your series-B could be your technical series-AA for all you care. It’s just a discrete class of stock, so treat it as such.
Each sheet is a discrete ledger. It makes things nice and clean… and not too long! You can then also record every transaction that happens for that class of share in that particular sheet.
I’m going to run you through a made up example to teach you how this all works.
The format is exactly the same for each sheet, so I will explain the Series-A sheet.
At the top, we pull in the price per share and closing date from your Assumptions sheet.
- Investor – add the names
- Issue Date – date of issue. This is closing date. It is linked. You will notice silicon valley bank converts the Warrants into S-A so we add them in at the date they decided to
- Cert No. – the cert number…
- Pro-rata investment – There are no pro rata at series-a here. This will only happen first in S-B
- Follow-on investment – There is no follow on in the first round… this happens at S-B
- Total Investment – How much did they invest
- Shares from Notes – How many shares were given to the angels when they converted
- Converted Principal + Interest – how much did they actually invest as converted in $
The checks at the bottom ensure you input the right numbers. This should be the same amount as in the Assumptions sheet.
Here you can see the two angels in the S-A ledger. These are not investing in the S-A preference shares round. They converted into the round. Do you see the reason is stated as ‘options exercise’?
Let’s move on.
- Share from Cash – Investment divided by the price per share. This is how many shares the investor has
- Cash Purchase Price Paid – This is the actual amount they invest to get their shares, there is some tiny rounding to make things work
- Total Shares – Invested shares in S-A plus convertible note shares. In case your angels participate
- Shares Outstanding – How many shares are outstanding in case there is any disposition
- Basis of Issuance – Pick the reason. Original issuance for new investors. Options exercise for the angels converting
- Price/Share – This is from the inputs at the top. It’s the price of the round
- Disposition Date – Date shares were sold
- Disposition Reason – Reason
- Comments – Comment!
Now let’s get to the next rounds! They’re the same.
The next round is the Series-B.
Bessemer and A16Z were the previous investors. They are investing again. In this case, Bessemer is leading and A16Z is just doing their pro rata.
Bessemer is investing their pro rata of $363k and adding on $2m. A16Z just do the pro rata of $545k. These are calculated in the Assumptions sheet for you.
Next is S-C. A16Z is out. Bessemer do their pro rata and chuck in $2m.
Softbank comes on board and does a $2m round. Presumably, Bessemer is leading again.
You’ll notice the checks add up.
Next, Bessemer is out and Softbank is leading with a clean $10m. They’re the only investor so we don’t care about pro rata rights and calculations.
The price per share is going up.
Whoops, Softbank is still here 😉 I must have played around with assumptions. Anyway, KKR is now in and leading the round with a $20m round.
The checks add up, so we don’t care about accidentally leaving Softbank on the table, but best to clean them off.
KKR are leading the way on the S-F now. $40m round. Nice 😉
Now we enter assumption land. We haven’t gotten past the S-F but we want to play around and see what happens to the cap table and returns profile IF we do a S-G.
in the Assumptions sheet, you add the investment and the valuation and the S-G use the PLUG to balance the sheet. We don’t need to waste time inputting BS in the sheet to run scenarios. Cool huh 😉
Yes, it does say the Check is wrong, but we are playing around and the check is to ensure the actual cap table adds up, not your scenarios. Understand?
The model does the same for H and I as an example, but it’s just the same as above.
Congrats. That’s the end of the course on preference shares! Now go build something awesome!
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