Kirsty does a fantastic job of explaining how to understand the fund raising process, the fog has lifted. I feel more comfortable about approaching raising capital and need to start thinking about my cap tables.
Thanks Kirsty, my understanding of SAFEs significantly evolved. I always thought SAFEs always get unlocked at the same valuation as the next round but TIL that there can be a valuation cap introduced.
A perfect presentation - in proper understandable english. She smiles with her eyes😃 The effects - and dilution potential - of the SAFE concept is finally fully understood.
This was EXTREMELY valuable. Would take an entire 1-day, hands-on, scenario planning workshop on this subject. Let’s fire up Excel on the laptop and model these types of scenarios so we (investors and startups) can get smarter about how equity ownership plays out over time. Has anybody built an app to model these types of scenarios?
thank you kirsty excellent ptesentation, I explained the math sife however I fidnlt catched legal and financial terms, maybe because I am not familiarized with options and stocks or maybe the problem is my weak english but I can feel how much important your presentation for any founder, who know maybe one day I visit YC and you explain all these things in details face to face😊 All my encouragements
A great presentation on how to capitalize a venture, through the venture's life-cycle, and how to drive your capital financing process. YC continues to pay dividends.
Hi. I think there is a mistake on shares quantity calculation on min (39:11). new group -> [Options available + Lead investor + Other investor] -> 10%+20%+5%=35% old group -> [Founders + Options Issued + SAFE inv A + SAFE inv B] -> 65% - total issued= 9,250,000+650,000+588,235+1,176,470=11,664,705 Hence new group calculation (post money cap): Options available: (10% / 65%)*11,664,705=1,794,570 (-12 shares in video) Lead investor: (20% / 65%)*11,664,705=3,589,140 (+235 shares in video) Other investors: (5% / 65%)*11,664,705=897,285 (+59 shares in video) Do I missed something?
This was incredible. Can we have the excel sheet where this was calculated? Tried mimicking the calculations, got ~305 shares off, so although most of the #s tally, some are off in last few decimals. If the original is available, can reverse engineer to see where I went wrong?
@22:40 Why are series A investors negotiating such a large pool increase as a part of the investment in this example? Isn't it better for a company to increase the option pool only as needed?
Could someone please share how we are supposed to calculate that 1,695,000 shares for the option pool increase? I think this is an important part of the calculations we as founders need to consider but it is not being explained.
"ok so this step you're going to have to trust me on" - re new options created... yeah she wasn't joking. The formula for new options created, after doing the algebra, is NO = -TOP.R(OC+NPs)-Vpre(-OAO + TOP.OC + TOP.NPs) / Vpre(TOP-1)+TOP.R where NO = new options TOP = target option pool OC = old common stock capitalisation NPs = New Preference shares created (for SAFE holders) Vpre = Pre money valuation OAO = Old available options
I'm trying to follow along. What is `R`? Can you put in the sample numbers in the calculation from this video into this equation to make it extra clear?
@@GAMasterMedo Sorry, R is total amount raised. I have a screenshot of a whiteboard with all my workings but when I posted a link here it was removed..
@@elijahvdp yeah it is. It’s a bit easier to follow if you could see each step of my workings. TBH I just wanted to validate the ‘just trust me on this’ step from the video and build a model of my own.
At 22:00 how would you calculate that equity then? You say once equity is given ie; stocks to employees,etc. then you're saying you calculate ie; %85 of the %92.5 remaining? & not from %100 & then how do you treat early investors vs. late in different funding rounds? the original percentage of post-money in that round is locked in & added? it seems in your examples..right?
I believe that's a no. Unless investors want to sell their shares and the agreement lets them. When company is profitable all shareholders get dividend after all expenses are deducted.
good explanation Q: How is a Safe recorded if not a debt and not a share represented in a cap table? ie: for Benefit Corp? Typically a Benefit Corp will have a recital on the Stock certificate issued representing the Articles of Incorporation amendment after 2/3rd of stockholders elect to become a Benefit Corp. This could happen after a safe was issued.
Good presentation. How much the company is sold should be based on pre-money valuation? This is how the dilution effect on existing shareholders will be known. Isn't it.
investors get preferred shares. Only founders and employees get common shares. This is because preferred shares has more advantages if company is sold or goes bankrupt.
@@pzyeon-im8qp While Preferred stock offers more stability and downside protection, it has limited potential for significant appreciation as well as no voting rights. Common stock has much greater potential for capital appreciation... Personally I'd rather hold common shares in a startup (same as founders) while preferred shares make sense for a company that is profitable and likely to distribute dividends. Not sure your comment is accurate regarding a scenario where a company is sold. The buyer will want control, meaning voting rights. Often paying a premium for those.
Are you certain about "limited potential for significant appreciation as well as no voting rights" In public companies, preferred shareholders generally do not have voting rights. But in venture investing, preferred shareholders can negotiate for similar voting rights as common shareholders-as well as the ability to elect members of the board of directors. @@PatrickHouwer0
I'm gonna find a startup that has perfected human cloning. I'm buying it and making the entire business model around cloning this woman and then selling a Kirsty clone to every single startup in the world. It will become a benchmark necessity for companies to have in their team in order to secure investment. YC are already 10 steps ahead of me.
Thanks for the lecture! Great to see women represented in leadership at Y Combinator. I wish I heard a female founder's voice asking a question, though
What date did YC begin encouraging Post-Money SAFEs? Seems it was some time in 2018? is a pre-money SAFE more beneficial to an investor than a post-money SAFE?
What if the options pool never got issued out to employees over time. And the directors decide to cut it back? Would it just get prorate get spread across the cap table?
what will be formula for 1% of the companys total share capital for anti dilution provision on weighted average provision, since this formula is not applicable C2 = C1 x (A + B) / (A + C) in my case
Thank you. The folks at UC Berkley Law running a VC Certificate Program could learn to better present the topics in a theory, approach and math rather than getting all tangled up poorly designed spreadsheets
I think that the lawyers should present this topic as it is heavily skewed towards rights and obligations and the finance stuff is minimal here - simple arithmetic to explain dilution. I'd really want to understand why 8s the structure what are the alternatives and have someone with deep background and practice on fundraising contracts.
pre money or prior to investment valuation= 5m. When investor invests 10m, post money valuation=(5m+10m)15m, so equity they'll get is 5m/15m i.e money raised/post money valuation.
Why did they issue all 10M shares from beginning? Aren't the founders only supposed to issue 4-5M to themselves then 10-15% of issued stock to the option pool while keeping the remaining shares unissued?
![Noob To Max With DRAGON REWORK In Blox Fruits [FULL MOVIE]](http://i.ytimg.com/vi/LnBMOinoOvA/mqdefault.jpg)
Chapters (Powered by ChapterMe) -
00:00 - Introduction
03:53 - SAFEs
10:15 - Post-money SAFEs
14:35 - Dilution
22:40 - Priced rounds
27:44 - Priced round dilution math
41:07 - Top tips
42:48 - Don't over-optimize
44:08 - Conclusion
Kirsty does a fantastic job of explaining how to understand the fund raising process, the fog has lifted. I feel more comfortable about approaching raising capital and need to start thinking about my cap tables.
what is the cap in startup and what is the cap table ?
Thanks Kirsty, my understanding of SAFEs significantly evolved. I always thought SAFEs always get unlocked at the same valuation as the next round but TIL that there can be a valuation cap introduced.
the best explanation on the internet.
Clearest and most coherent explanation of this I’ve ever seen. Thanks Kirsty!
Great job Kirsty and thank you YC! Keep putting out more of this gold!
It can't be explained better. thanks Kirsty and YC
Approachable summary for new founders to understand SAFEs, thank you
Thanks for articulating clearly, she knows her stuff!
16:10 That's some nice articulating there.
@@rudeandconfused LMAO
I really liked the explanation of SAFe, best I found so far
A perfect presentation - in proper understandable english. She smiles with her eyes😃
The effects - and dilution potential - of the SAFE concept is finally fully understood.
Kristy is an amazing instructor ,,, great job
This was EXTREMELY valuable. Would take an entire 1-day, hands-on, scenario planning workshop on this subject. Let’s fire up Excel on the laptop and model these types of scenarios so we (investors and startups) can get smarter about how equity ownership plays out over time. Has anybody built an app to model these types of scenarios?
Monique Lambert
Yes, check out "Carta" scenario modeling. The company used to be called e shares...now called Carta.
@@thekingstonzone Yes, that exactly.
thank you kirsty
excellent ptesentation, I explained the math sife however I fidnlt catched legal and financial terms, maybe because I am not familiarized with options and stocks or maybe the problem is my weak english but I can feel how much important your presentation for any founder, who know maybe one day I visit YC and you explain all these things in details face to face😊
All my encouragements
A great presentation on how to capitalize a venture, through the venture's life-cycle, and how to drive your capital financing process. YC continues to pay dividends.
One of the best videos so far on this topic
Excellent work Kirsty.. Totally explained it super clearly
Hi.
I think there is a mistake on shares quantity calculation on min (39:11).
new group -> [Options available + Lead investor + Other investor] -> 10%+20%+5%=35%
old group -> [Founders + Options Issued + SAFE inv A + SAFE inv B] -> 65% - total issued= 9,250,000+650,000+588,235+1,176,470=11,664,705
Hence new group calculation (post money cap):
Options available: (10% / 65%)*11,664,705=1,794,570 (-12 shares in video)
Lead investor: (20% / 65%)*11,664,705=3,589,140 (+235 shares in video)
Other investors: (5% / 65%)*11,664,705=897,285 (+59 shares in video)
Do I missed something?
I believe you are right
One of the best video regarding SAFE
Can some one please tell me at min 36:15 how did option pool increase happen? ....
Thank you for breaking it down in such a simplistic fashion.
Does anyone know how she calcualted the new issues option poll of 10 % to be 1.695 M shares?
This was incredible. Can we have the excel sheet where this was calculated? Tried mimicking the calculations, got ~305 shares off, so although most of the #s tally, some are off in last few decimals. If the original is available, can reverse engineer to see where I went wrong?
Thank you Kirsty for a great primer on SAFEs.
@22:40 Why are series A investors negotiating such a large pool increase as a part of the investment in this example? Isn't it better for a company to increase the option pool only as needed?
This presentation was so good, really help me to understand safe and cap table, etc. Awesome help!
Best explanation on SAFEs. Thanks
YC, could you share the link to the model Kirsty shared at 36:10 ?
Any success with getting the model, Ethan?
Amazing explanation thank you!
Thanks for the presentation. Incredibly informative and helpful.
Could someone please share how we are supposed to calculate that 1,695,000 shares for the option pool increase? I think this is an important part of the calculations we as founders need to consider but it is not being explained.
My take home - Do what you need to do with the money and make the company a success
"ok so this step you're going to have to trust me on" - re new options created...
yeah she wasn't joking. The formula for new options created, after doing the algebra, is
NO = -TOP.R(OC+NPs)-Vpre(-OAO + TOP.OC + TOP.NPs) / Vpre(TOP-1)+TOP.R
where
NO = new options
TOP = target option pool
OC = old common stock capitalisation
NPs = New Preference shares created (for SAFE holders)
Vpre = Pre money valuation
OAO = Old available options
I'm trying to follow along. What is `R`?
Can you put in the sample numbers in the calculation from this video into this equation to make it extra clear?
@@GAMasterMedo Sorry, R is total amount raised. I have a screenshot of a whiteboard with all my workings but when I posted a link here it was removed..
Still quite confusing tbh
@@elijahvdp yeah it is. It’s a bit easier to follow if you could see each step of my workings.
TBH I just wanted to validate the ‘just trust me on this’ step from the video and build a model of my own.
@@andyjbryant I totally get it. I was just about ready to contact Kirsty to figure out the details until I saw your post. Thanks!
This makes a lot of sense ❤
Thanks Kirsty
Great presentation.
One thing that you didn't explain and that i can't figure out is the option pool increase. How did you get to 1.695M?
Fantastic. Simple and easy to understand! Thank you.
Extremely great explanation
Thanks for making life easier. Kirsty Rocks !!!!!!
At 22:00 how would you calculate that equity then? You say once equity is given ie; stocks to employees,etc. then you're saying you calculate ie; %85 of the %92.5 remaining? & not from %100 & then how do you treat early investors vs. late in different funding rounds? the original percentage of post-money in that round is locked in & added? it seems in your examples..right?
This is incredible! Thank you!
What happens if one would never have a prices round because the safe money is all it needed to kick off growth on its own?
This video is gold. Thank you!
In the 40:12 frame, Is the company or founder able to buy back the preferred shares sold to investors when the company is profitable?
I believe that's a no. Unless investors want to sell their shares and the agreement lets them. When company is profitable all shareholders get dividend after all expenses are deducted.
good explanation Q: How is a Safe recorded if not a debt and not a share represented in a cap table? ie: for Benefit Corp? Typically a Benefit Corp will have a recital on the Stock certificate issued representing the Articles of Incorporation amendment after 2/3rd of stockholders elect to become a Benefit Corp. This could happen after a safe was issued.
Just to echo others, thank you! Great info and great explanations.
Good presentation. How much the company is sold should be based on pre-money valuation? This is how the dilution effect on existing shareholders will be known. Isn't it.
In the 40:12 frame, investor's shares are listed in the preferred table instead of the common shares. Why?
investors get preferred shares. Only founders and employees get common shares. This is because preferred shares has more advantages if company is sold or goes bankrupt.
@@pzyeon-im8qp While Preferred stock offers more stability and downside protection, it has limited potential for significant appreciation as well as no voting rights. Common stock has much greater potential for capital appreciation... Personally I'd rather hold common shares in a startup (same as founders) while preferred shares make sense for a company that is profitable and likely to distribute dividends. Not sure your comment is accurate regarding a scenario where a company is sold. The buyer will want control, meaning voting rights. Often paying a premium for those.
Are you certain about "limited potential for significant appreciation as well as no voting rights" In public companies, preferred shareholders generally do not have voting rights. But in venture investing, preferred shareholders can negotiate for similar voting rights as common shareholders-as well as the ability to elect members of the board of directors. @@PatrickHouwer0
Very simple concept to understand.
18:40 question about the dilution, same here!
Thanks Kristy.... that was really informative
Great explanation. Thank you
Loved the content, thanks for sharing on RUclips
its post money SAFE. why does the SAFE holder share get diluted after price round ?
I'm gonna find a startup that has perfected human cloning. I'm buying it and making the entire business model around cloning this woman and then selling a Kirsty clone to every single startup in the world.
It will become a benchmark necessity for companies to have in their team in order to secure investment.
YC are already 10 steps ahead of me.
Thanks for sharing. Very helpful.
Information is a precious like gold.
Great video! Just closed a SAFE after watching this
Just to make sure I understood: post money the meaning is after raising on priced-shares/Series A?
GREAT explanations - super helpful!!!
The last q was good Founder investing: safes or loans to the company? Which is better?
Excellent video!
Thanks for the lecture! Great to see women represented in leadership at Y Combinator. I wish I heard a female founder's voice asking a question, though
thank you sooo much for sharing your knowledge, extremely helpful. PS : Kirsty you are officially my women crush
Thank you very much for this video! Really interesting
What date did YC begin encouraging Post-Money SAFEs? Seems it was some time in 2018? is a pre-money SAFE more beneficial to an investor than a post-money SAFE?
Another video says pre-money is better for the founder, but I haven't found a good video on that type yet.
What a beautiful explanation 👏🏽❤️✌🏽
Can I ask for the calculation of the 1.695M shares increase in the option pool?
When you'll upload the lecturer slide?
Gotta be accepted to see those ;)
Just screenshots, but useful to follow: docs.google.com/presentation/d/1iv_T1kU6ECgptgvEiz6qfuW8RG5s_J616vE3LIG5aGI/edit?usp=sharing
What if the options pool never got issued out to employees over time. And the directors decide to cut it back? Would it just get prorate get spread across the cap table?
Did anyone find the model for the increase in the options pool she talked about?
Just learned what SAFE is while watching Shark Tank March 25, 2022. I definitely don't want to owe anyone be owned by someone else.
What happens to employ 5% when we go to seed round and sell 10% of the company? Do they still have 5% or their equity gets reduced to 4.5%?
what will be formula for 1% of the companys total share capital for anti dilution provision on weighted average provision, since this formula is not applicable C2 = C1 x (A + B) / (A + C) in my case
When she refers to “available files with these documents”... “in our website”... what does she mean? In the YC startup founder course program website?
Kirsty is the best
I am lost on how she got the calculations for the shares, I'm getting different figures. Anyone care to help me clear that up?
Does the note automatically convert into a preferred share or an ordinary share ?
Do you guys know what happens to unexercised options in case of an acquisition? Who's the owner of these ones, in case?
If there is an vesting acceleration clause, these will be vested immediately . If not,i do not know what would happen
Vested by who? If they're not exercised, nobody owns it. Or maybe they're given back to the owners?
Very well explained!
Essentially, a SAFE holder can’t lose
Yes a Safe holder can lose. SAFE are more advantageous for the founder and the investor shoulders more risk. Plus they don’t accrue interest.
She said to trust her on the 10% increase in options, but how do you go about calculating that? Must we use it as a plug?
same question...
How can I decipher the pre-money valuation?
Does anyone has a sheets template to model this?
Wonderful explanation
Thanks for the information
Thank you. The folks at UC Berkley Law running a VC Certificate Program could learn to better present the topics in a theory, approach and math rather than getting all tangled up poorly designed spreadsheets
In the scenario of priced round is less than the Cap, Safe investor should enjoy a discounted valuation.
I think that the lawyers should present this topic as it is heavily skewed towards rights and obligations and the finance stuff is minimal here - simple arithmetic to explain dilution. I'd really want to understand why 8s the structure what are the alternatives and have someone with deep background and practice on fundraising contracts.
1500 companies .... that's more than a lot. nice presentation
Can we say no to the safe?
Awesome video!
I am confused. So if a company is valued at 5 million and an investor puts in 10 mil (enough to buy the company twice) they get only 66% equity?
pre money or prior to investment valuation= 5m. When investor invests 10m, post money valuation=(5m+10m)15m, so equity they'll get is 5m/15m i.e money raised/post money valuation.
Thanks Kirsty
Well Done Kirsty
That was great! Thanks!
Why did they issue all 10M shares from beginning? Aren't the founders only supposed to issue 4-5M to themselves then 10-15% of issued stock to the option pool while keeping the remaining shares unissued?
Yes. Don't the calculations come out the same either way?
Great Job
thank you!!!!
080 Schowalter Pike
Shes successful, good-looking, smart, rich and a great speaker. Deadly combination.