WE.VESTR Co-Founder & CEO Floris van Hoogenhuyze offers his tips for how startup founders can benefit from cap table scenario modeling.
Scenario modeling helps founders mitigate dilution in the cap table.
Different valuations, investment types, and investment terms all can result in various levels of dilution. While some types of investments may be more strategic than others (more on that later), scenario modeling allows founders to plan for or avoid high dilution situations.
Scenario modeling creates additional transparency with current shareholders.
If founders can show their current shareholders how future fundraising will impact the cap table, shareholders can then weigh-in as well as fully comprehend the decision-making process that the venture undergoes while raising funds. This not only keeps investors happy, but it also keeps ESOP participants (employees) up to speed.
Planning to launch an ESOP? Scenario modeling can help with that.
For founders who are looking to launch an ESOP or an employee equity plan, scenario modeling allows them to see the impact that the issuance of new shares will have on their current cap tables. This helps in the designing of the plan as well as keeps current shareholders - many of whom will mandate an ESOP - updated on your progress.
Scenario modeling allows founders to strategize for future fundraising.
When approaching fundraising, there are many factors in deciding the type of investment the company needs. This could be debt, convertible notes, cash, etc. Scenario modeling not only shows companies the impact the different investment types can have on the cap table, but also can indicate what the company should pursue in rounds after what is being raised currently.
For example, if the company takes on a convertible note in its current fundraising round, scenario modeling can show the best strategy for the following round after the convertible note turns into equity.
Scenario modeling enables professionalism and transparency to future investors.
Founders can already use WE.VESTR as a data room when pitching new investors. That is, founders can show potential investors the current cap table, ESOP, company financials, legal documentation, and KPIs – all with a single log-in. Let's say conversations are going well with a potential investor, founders can now use scenario modeling to show this investor the impact of their pending investment on the cap table in real-time.
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