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About Stephen R. Poland
Stephen R. Poland has worked with hundreds of startups and entrepreneurs, mentoring them on startup mechanics, funding plans, pitch decks, financial models, and due diligence documentation for the angel funding process.
Steve brings more than 20 years’ experience in startups and entrepreneurship to his career. Leveraging leadership roles with the Walt Disney Company, MacMillan Publishing, and Bertelsmann, Steve co-founded startups in the digital music and on-demand media manufacturing sectors, as well an early days anti-virus product.
Along with being co-founder of 1x1 Media, Steve works as a venture growth advisor in Western North Carolina.
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- The Startup Valuation Explorer calculator
- Expanded coverage of Valuation Methods
- Responding to investor questions about your valuation
- Understanding option pool impact on your valuation
For many early-stage entrepreneurs assigning a pre-money valuation to your startup is one of the more daunting tasks encountered during the fundraising quest. This guide provides a quick reference to all of the key topics around early-stage startup valuation and provides step-by-step examples for several valuation methods.
In more detail, this Founder’s Pocket Guide helps startup founders learn:
- What a startup valuation is and when you need to start worrying about it.
- Key terms and definitions associated with valuation, such as pre-money, post-money, and dilution.
- How investors view the valuation task, and what their expectations are for early-stage companies.
- How the valuation fits with your target raise amount and resulting founder equity ownership.
- How to do the simple math for calculating valuation percentages.
- How to estimate your company valuation using several accepted methods.
- What accounting valuation methods are and why they are not well suited for early-stage startups.
Throughout this guide numerous mini-infographics illustrate the key concepts founders need to know and show the relationships between stock option grants, vesting timelines, exercise timing, and associated tax implications.
In detail, this Founder’s Pocket Guide walks entrepreneurs though the following elements:
Startup Equity Compensation Basics: Sharing Equity with Your Team
The first section of this guide is structured to help founders build a base of understanding about the numerous definitions and terminology related to startup equity compensation and stock options. Topics covered include:
• A brief refresher on startup equity in preparation for delving into the details of stock options and other forms of equity compensation.
• A quick review of how startup equity ownership is shared between the various stakeholder of a startup including the founders, investors, and employees.
• The fundamental mechanics of how startup stock options work, including option grants, exercising, vesting, and selling of stock shares.
• A detailed review of equity compensation terminology and definitions, such as vesting, strike price, fair market value, and spread.
• An explanation of each of the most common types of equity compensation including Restricted Stock, Incentive Stock Options, Non-Qualified Stock Options, and Restricted Stock Units.
Equity Compensation Types in Detail
The next section of this guide reviews each of the most common types of equity compensation, including detailed components such as tax implications, vesting and exercise parameters, and other IRS rules governing the ownership of each equity type. The following equity compensation types are covered:
• Restricted Stock (RS)
• Incentive Stock Options (ISOs)
• Early Exercise Incentive Stock Options (EE-ISOs)
• Nonstatutory Stock Options (NSOs)
• Early Exercise Nonstatutory Stock Options (EE-NSOs)
• Restricted Stock Units (RSU)
Establishing Your Startup’s Equity Plan
In the final part of this guide we dig deeper into the key areas founders need to consider when developing an equity plan for their startup, with specific focus on the following issues:
• When to implement a formal equity incentive plan
• What factors to consider when deciding how large the equity compensation pool should be
• How to decide employee equity award amounts at the different stages of a startup’s lifecycle
• What general steps to take to establish a equity compensation plan for your startup
• What key information that must be communicated to employees about equity compensation awards
• Which step-by-step calculations are needed to truly understand equity ownership percentages and value
• How IRS and SEC rules impact private company equity compensation
This guide provides a framework and process to help startup founders answer this common question.
Equity ownership affects the culture and sense of wellbeing of a startup. Founders typically sacrifice a great deal of life opportunities to work on a startup effort. In exchange for that sacrifice, a founder wants to feel the ownership equation with any co-founders is fair.
In detail, this Founder’s Pocket Guide walks entrepreneurs though the following elements:
• Take The Founder Test to make sure everybody deserves founder status
• Review the case for splitting your founder equity into equal parts
• Use the Equity Split Scorecard as a fair method to allocate more equity to highly skilled co-founders
• Solve common equity problems using founder vesting structures
• Answer common equity split questions like IP and founder-investors
Note that this guide does not go into how to use equity to attract employees or using equity to pay service providers, advisors, development companies, or other contractors. This guide focuses solely on the best practices of deciding the equity ownership split between the founders of a startup venture.
Structure deals correctly. Getting the money in the bank is a big step, but doing it the right way matters even more. This book provides easy to follow guidance for choosing and documenting the best funding structures for both your startup and your funding partners. As an added bonus, a promissory loan example is provided, with blow by blow details of each clause.
Hone your Friends and Family pitch. Additional sections provide concise information to help you prepare a compelling funding pitch, as well as explaining how to document your estimations of the market and financial feasibility of your early-stage startup.
Startup Crash Course: Friends and Family Funding guides founders through topics such as:
• Structuring a simple startup loan with friends and family lenders.
• Using convertible debt to entice friends and family to invest in your startup.
• Learning the most important considerations for issuing stock to friends or family members.
• Understanding the legal limits of raising startup capital from friends and family.
• Keeping early funding rounds clean for later stage investors such as angels and VCs.
• Using profit sharing to rewarding friends and family investors for backing your startup.
Expanding on these fundraising concepts, this Founder’s Pocket Guide helps startup founders learn:
•What a term sheet is and how to summarize the most important deal terms for your fundraising and startup building goals.
•How preferred stock shares differ from common shares, with review of how each key preferred share right and preference is tied to the investor’s shares.
•Key terms and definitions associated with equity fundraising, such as pre-money valuation, founder dilution, and down round.
•How to decipher legalese associated with a term sheet deal, such as pro rata, fully diluted, and pari passu.
•The full list of the most common term sheet clauses, their plain English meaning, and their importance to an early-stage investment deal.
•Simple math for the key term sheet financial aspects, including calculating fully diluted shares outstanding, investor equity ownership percentages, and the impact of option pools on founder dilution.
•Example exit scenarios, showing how term sheet deal points impact how exit proceeds get divided among investors and founders.
This highly visual guide helps you understand the key moving parts of a startup cap table, review typical cap table inputs, and demystify terminology and jargon associated with cap table discussions. Along the way, this guide provides easy-to-follow examples for the most common calculations related to cap table building.
Expanding on these key skills every startup founder should know, this Founder’s Pocket Guide helps you learn how to:
•Build your basic cap table step by step, including founder’s shares, option pools, angel investor rounds, and VC rounds.
•Decipher cap table specific lingo, such as fully-diluted shares outstanding, preferred shares vs. common shares, Series A, Series B, and so on.
•Establish a stock option pool in your cap table and understand the option pool effect on founder dilution.
•Understand the simple math behind cap table formulas and calculations, including calculating fully diluted shares outstanding, investor equity ownership percentages, and share price.
Review the Complete Funding Process. This concise guide gives entrepreneurs a complete overview of the angel funding process, answering the most frequent questions entrepreneurs face as they build new companies.
Save Time and Avoid Pitfalls. If you are new to the startup funding process and need to raise angel capital, start with this book. It strips away non essentials and provides you with fundamental, easy-to-reference information so you can move on to building your venture. Concise explanations help you understand angel investor expectations and go into investment discussions prepared and knowledgeable.
Questions answered in this guide include:
• Is my startup really “investor ready”?
• How much can my startup legally raise?
• How much equity should I give up to investors?
• How much money is realistic to raise from angels?
• What is a pre-money valuation and how can I determine the right amount?
• What do terms such as dilution, convertible debt, and cap table mean?
• What is a term sheet, and how does it affect an investment deal?
• What is the difference between preferred shares and common shares?
• What stage does my startup need to be at to be interesting to angel investors?
This easy to follow guide helps startup founders understand the key moving parts of the convertible debt funding structure and serves as an easy reference for the most common terms and calculations related to convertible debt.
In detail, this Founder’s Pocket Guide helps startup founders learn:
•What convertible debt is and how it can be an important fundraising structure.
•Key terms and definitions associated with convertible debt, such as conversion triggers, valuation caps, and conversion discounts.
•Key advantages and disadvantages of using convertible debt as a funding structure.
•How investors view the convertible debt, and what their expectations are for early-stage investment deals.
•Simple math for calculating the impact of conversion discount rates and resulting equity ownership on conversion.
•Example convertible debt deals illustrating how convertible debt benefits both founders and investors alike.