Class 6: Law of Technology, Cap Tables

In the context of capitalization tables, what is the most precise interpretation of 'Fully Diluted Shares' in determining shareholder value?

Considering the implications of a 'Most Favored Nation' clause in a SAFE agreement, under which specific condition would an early SAFE investor benefit most?

A startup is considering two financing options: a SAFE with a $10 million valuation cap or a convertible note with a $12 million valuation cap and a 6% interest rate. Under what condition would the SAFE be the definitively superior choice for the company?

What critical implication arises from the absence of a maturity date and interest rate within a SAFE agreement, compared to a convertible note?

Company X issues both SAFEs and convertible notes before a priced round. How is the liquidation preference hierarchy typically structured, assuming standard terms?

Consider a scenario where a company issued SAFEs with a $10 million valuation cap. At acquisition, the acquirer values the company at $15 million. If the SAFE holders opted to convert their SAFEs into common stock rather than receive their original investment, how would their returns be affected, assuming standard SAFE terms?

In a venture capital context, what differentiating factor distinguishes 'authorized shares' from 'outstanding shares' within a company's capitalization table?

A company issues both SAFEs and Convertible Notes. The SAFEs have a 'Most Favored Nation' clause. Later, in a subsequent equity round, new investors negotiate a provision granting them preemptive rights to maintain their ownership percentage in future rounds. How does the MFN clause affect the SAFE holders?

If a company's cap table includes a stock option plan, how do shares reserved for this plan impact the calculation of 'fully diluted shares'?

What conditions would make a convertible note undoubtedly more favorable for a startup company compared to a SAFE?

Consider a company that initially issues SAFEs with a $5 million valuation cap. Subsequently, due to market conditions, the company has to issue a new series of SAFEs with a $3 million valuation cap. The original SAFEs contained a 'Most Favored Nation' (MFN) provision. What is the direct consequence?

How should the founders determine the pro forma distribution between themselves and the new investors based on the cap table?

Company A seeks $1 million in funding and is deciding between a convertible note and a SAFE. The convertible note has a 20% discount rate and a $6 million valuation cap, while the SAFE has a $5 million valuation cap. Considering all other terms equal, under which of these scenarios would convertible note offers a result more suitable than the SAFE for the investors?

What is the reason that venture capitalists sometimes favor SAFE agreements with lower valuation caps compared to convertible notes with higher caps?

A company is deciding between two financing options: SAFE agreements and convertible notes. The company anticipates a high likelihood of being acquired within the next two years. What is a compelling argument for choosing SAFE agreements over convertible notes?

A startup initially issues SAFE agreements with a $10 million valuation cap. Later, the company undertakes a Series A funding round and issues preferred stock with certain protective provisions, including a participating liquidation preference. How does this impact the SAFE holders assuming those provisions didn't exist when the SAFE were issued?

A seed-stage startup is oversubscribed in its first equity financing round. Multiple investors are willing to invest at the $5 million valuation cap outlined in the company's initial SAFE agreements. However, some new investors are requesting a lower, $4 million valuation cap. How can the startup navigate this situation without alienating existing SAFE holders, assuming all SAFEs contain a 'Most Favored Nation' clause?

Consider two early-stage startups, Company A and Company B. Company A finances its early operations primarily through convertible notes, while Company B relies heavily on SAFE agreements. Both companies are now approaching their Series A funding at comparable valuations. Which company is likely to exhibit a more streamlined closing process for the Series A round, considering the implications of their initial financing choices?

In a rapidly growing technology startup, early investors were issued SAFEs with a $7 million valuation cap. Subsequently, the company experiences hypergrowth, and as it prepares for Series B funding. How are new investors likely to balance pressure for a higher valuation versus accommodating the conversion of the existing SAFEs?

A angel investor is evaluating two investment opportunities: Startup X, offering convertible notes with a $10 million valuation cap and 8% interest, and Startup Y, offering SAFEs with a $8 million valuation cap and a 'Most Favored Nation' clause. Both companies operate in similar sectors and project comparable growth. What is the most critical assessment determining which option better aligns with the angel investor's risk-reward profile?