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What is PrefStack.com?

This website has been designed and built to help you work through the venture capital financing process. While venture capital isn’t necessarily overly complicated, successive rounds of financing, the use of both equity and convertible debt, and features such as anti-dilution can make it tricky calculate share prices and to understand exactly who gets paid what on an exit. We’ve integrated the levers available to a venture capital investor in an easy to use web application, so that the user can model out various financing scenarios accurately and consistently. Our approach to this from the outset was such that if we couldn’t build this to be professional grade, it wasn’t worth building at all.

How are interest and dividends calculated?

Interest and/or dividends are based on a 365-day year. For partial periods, the interest and/or dividends are pro-rated for the period.

How are options handled?

On each financing round, we will calculate the number of options required to reach the specified postmoney option percentage of the overall capitalization. You can then allocate options with various strike prices, vesting schedules, expiration dates, etc. and in the money options will be exercised and paid out on exit. If no options are allocated, the entire option pool will be considered common shares for the purposes of exit calculations.

What about anti-dilution protection?

You can model out the effects of the three primary types of anti-dilution protection out there. Full ratchet anti-dilution protection effectively undoes the last round of finance and reprices that round at the current price, and broad-based and narrow-based weighted average anti-dilution protection are less punitive as they take into consideration the existing capitalization of the company. The effects of anti-dilution protection are seen as a multiplier on the affected shares, rather than the issuance of new shares, and these multipliers are included in the calculation of the share price in the “down round” (i.e. as if the shares are issued into the premoney). PrefStack.com follows the methodology outlined here, and the broad-based weighted average calculation includes both allocated and unallocated options.

How is rounding handled in share calculations?

When an investment results in the issuance of a fraction of a share, the number of shares is rounded up to the nearest whole share. This may make it look as if your capitalization table is off by a share or two, but typically you would not issue investors a partial share.

Is it possible to manually edit the numbers of shares issued in an equity round?

Yes. On the bottom right of your company home page go to More -> Capitalization Edits. Here you can manually enter equity rounds and share prices, etc. and we will derive premoney values, as opposed to entering premoney values to derive share prices.

Is it possible to do an extension of an existing round?

To accomplish this, you’ll likely want to refer to your first financing as an A1 or something similar. To do an extension that includes a different mix of investors or at a different price, simply set up your subsequent financing as an A2 that is pari passu to the A1 round and has the same share characteristics.

What about SAFEs?

At its core, a Simple Agreement for Future Equity (SAFE) is essentially a convertible debt instrument for financial modeling purposes, but without all the features associated with debt. For example, a SAFE typically will not have an expiration date or bear interest, but the principal amount will convert into equity at some point in the future, potentially at a discount to the next round, and this conversion may be capped at a specific valuation. To model a SAFE, simply add a debt financing with 0% interest and the features outlined in the deal. For more on the accounting treatment of SAFEs (i.e. equity vs. debt), this guide is excellent.

Quick Hits and Spreadsheet Examples

In this section, we'll address some common questions about how these deals are put together, and provide some simple examples.

Does the fully diluted number of shares outstaning include the existing option pool?

Yes.

How do you calculate the share price in a simple financing?
Divide the valuation of the company before investment is received (premoney) by the fully diluted number of existing shares outstanding.

Download excel spreadsheet example here.

How do you incorporate convertible debt/debentures/notes in a new financing?
The principal and interest accrued to date on the debenture are essentially considered part of the new investment. If the debenture has a feature where it converts into shares at a discount, the discount is applied to the share price for the new round, and this price is used to calculate the number of shares to be issued to the debenture investors.

Download excel spreadsheet example here.

What is the economic effect of issuing options premoney vs. postmoney?
There are a number of articles out there on this subject, and the most important thing is to ensure that the company and investor interpretation of the option pool language in a term sheet is the same. Download a spreadsheet illustrating the effects of including the option pool in the premoney vs. postmoney here.
Note that this example contains a circular reference, which require that you enable iterative calculations to work properly.

How do anti-dilution provisions factor into share pricing in a subsequent round?
Again, there are a number of resources out there that walk through examples of anti-diltion, and follow the methodology outlined in this article by law firm WSGR. We've incorporated examples of full-ratchet, broad-based and narrow-based weighted average anti-dultion protection into an excel spreadsheet example here. Note that these examples contain circular references, which require that you enable iterative calculations to work properly.