Cap Tables, Startup Fundraising: Class 6

What is a cap table, also known as a capitalization table?

Which of the following items would you typically find listed on a company's cap table?

Which term defines the number of shares a company is legally allowed to issue?

What do 'shares reserved for stock option plan' represent on a cap table?

On a cap table, what does 'fully diluted shares' refer to?

In the context of a cap table, what is the primary purpose of tracking 'fully diluted shares'?

What is a 'pro forma' cap table?

Which scenario describes a situation where a pro forma cap table would be MOST useful?

What is the main purpose of using SAFEs and convertible notes in startup financing?

In what way do SAFEs and convertible notes differ from traditional equity financing?

What does SAFE stand for in the context of startup financing?

Which organization is credited with introducing the SAFE financing instrument?

What is a 'valuation cap' in a SAFE agreement?

How does a 'discount rate' in a SAFE agreement benefit an investor?

What does a 'Most Favored Nation' (MFN) clause in a SAFE agreement ensure for the investor?

In the event of a company sale before a priced equity round, what are the typical options for SAFE holders?

What is a 'liquidation preference' in the context of a SAFE agreement or convertible note?

How do convertible notes function in the absence of a conversion event?

What is the typical maturity timeframe for a convertible note?

How do SAFEs typically handle interest accrual compared to convertible notes?

In the event of a liquidation event, how does the payout priority typically compare between convertible noteholders and SAFE holders?

Which of the following is generally considered a benefit of SAFEs over convertible notes?

Which of the following attributes is MOST directly associated with convertible notes?

When two co-founders issue restricted stock at nominal value and file 83(b) elections, what tax benefit are they primarily seeking?

A company needs $1,000,000 to develop a beta version of its enterprise software. Considering only the information provided, which funding option presents the LOWEST immediate dilution for the founders?

Company A, bootstrapped with $250,000, requires $1,000,000 for its next stage. They're considering a SAFE with no discount and a $5,000,000 cap, or a convertible note at 8% interest with a $3,000,000 cap. What key factor should they prioritize if they anticipate a significantly higher valuation (>$10M) in their Series A round within 12 months?

A startup is deciding between a SAFE and a convertible note. Which of the following scenarios would MOST strongly favor using a convertible note over a SAFE?

Consider this simplified scenario: A company has 1,000,000 common shares outstanding. It issues a SAFE with a $5,000,000 valuation cap. Later, the company raises a Series A at a $10,000,000 pre-money valuation. If the SAFE investor invested $500,000, approximately how many shares will the SAFE investor receive upon conversion?

A company is considering two financing options. Option 1: a SAFE with a $8 million valuation cap and no discount. Option 2: a Convertible Note with a $6 million valuation cap and a 20% discount. If the company successfully raises a Series A round at a $12 million valuation, which option would result in the SAFE/Note holder receiving more shares upon conversion, assuming an initial investment of $250,000?

A company issues SAFE agreements totaling $1,000,000 with a 'Most Favored Nation' (MFN) clause. Later, to attract a key investor, they offer a SAFE with a lower valuation cap. What is the company's obligation to the previous SAFE investors with the MFN clause?

What is the MOST likely reason a startup would choose to use SAFEs instead of convertible notes for early-stage financing?

Two companies, A and B, are seeking seed funding. Company A chooses SAFEs with a $7 million cap. Company B selects convertible notes at 6% interest with a $5 million cap. If neither company raises a priced equity round and both are acquired for $4 million before the notes' maturity, what is the likely outcome for the SAFE and note holders?

A founder is bootstrapping but needs $750,000 to reach a milestone. They are considering a SAFE with no discount, or convertible note structure with 12% interest rate. If the founder anticipates a significant chance (50% or higher) of not reaching a subsequent priced round due to market conditions, what factor becomes MOST critical for them?

Which of the following questions would require the MOST sophisticated understanding of cap tables, SAFEs, and convertible notes to answer correctly?

You are presented with the following choice of investment agreements: I) SAFE with 10% discount cap; II) Convertible Note with a $30,000,000 valuation; or III) Priced Equity Round with a $35,000,000 valuation. Knowing your investment target could easily achieve a quarter-billion dollar exit within the next 3 months, what item would be MOST beneficial to consider when selecting the appropriate investment structure?