EQUITY OWNERSHIP PRE VENTURE Use this workbook to determine the appropriate percentage ownership in

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					                                                        EQUITY OWNERSHIP PRE VENTURE




                                    Use this workbook to determine the appropriate percentage ownership in a pre-financing situation for:
                                                Founders
                                                The first hire
                                                Other hires
                                                Boards of Directors
                                                Boards of Advisors
                                                Service providers
                                                Technology licensing office of sponsoring university

                                    The "Summary results" worksheet gives the average ownership %'s for 16 companies

                                    The workbook includes 22 worksheets
                                               Worksheet Description
                                                    1      Introduction
                                                    2      Summary results
                                                    3      Key points
                                                    4      Forms of equity
                                                    5      Types of stockholders
                                                    6      Detailed analysis used to calculate the summary results
                                                  7 - 22 Examples 1 - 16




Worksheet = Introduction
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                                            9:10 PM
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                                                                  KEY POINTS


                         1     Equity allocations are subjective
                         2     Market data is available, but tough to find
                         3     You need to develop an equity plan, like
                                           Initial hires get more shares than later hires (sunset algorithm)
                                           An employee at one level gets 2x the number of shares an employee at a lower level
                         4     You should prepare a pro-forma capitalization (“cap”) table, from today to the liquidity event
                                           Anticipate dilution
                                           Calculate proceeds for each shareholder
                                           Focus on % owned, not the number of shares
                         5     In offer letters, always refer to shares, not % ownership
                         6     Share ownership should reward future performance, which means it should vest over time
                         7     Retain the right to buy back the shares if an employee exits the company prior to the liquidity event
                         8     Selecting the form of equity, the pricing and the vesting requires legal advice
                         9     Paper up the commitments -- early




Worksheet = Key points
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                                       9:10 PM
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                                                   PRE FINANCING OWNERSHIP %'S


                                                                                               Range
                                                                    Average             From            To

                                             Founders                84.0%             65.0%           99.0%

                                              Hire #1                 6.8%              1.0%           16.0%
                                              Hire #2                 3.5%              0.0%            4.5%
                                              Hire #3                 1.5%              0.0%            4.0%
                                              Hire #4                 1.2%              0.0%            3.0%

                                             Directors            1.2% - 1.3%           0.8%           1.6%

                                             Advisors                 1.1%              0.8%           1.5%

                                         Service providers            0.9%              0.4%           1.3%

                                   Technology licensing offices       3.0%              3.0%           3.0%




                                   Note -- the "average" column represents the average % ownership from 16 separate situations.
                                   This information is taken from the summary on the worksheet titled "Detail Analysis".




Worksheet = Summary results
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                                  9:10 PM
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                                                          TYPES AND FORMS OF EQUITY


                                        1     Options
                                                        Qualified, non qualified
                                                        Exercise price
                                                        Exercise dates (vesting)
                                                                   Daily, monthly, annually
                                                                   Cliff
                                                                   Acceleration upon liquidity event
                                        2     Cheap stock
                                                        Pricing
                                                        Buy back rights
                                        3     Equity appreciation rights
                                                        Pricing
                                                        Start date for calculating the appreciation
                                        4     Conclusion
                                                        Consult tax / legal specialists
                                                        Accounting implications may be significant
                                                        Income tax implications may be significant for the individual




Worksheet = Forms of equity
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                        9:10 PM
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                                                               TYPES OF STOCKHOLDERS

                                                   1      Founders
                                                   2      Co founders
                                                   3      Early hires
                                                                     The first hire
                                                                     Others
                                                   4      Directors / advisors
                                                   5      Service provides – lawyers and consultants
                                                   6      Equity investors
                                                                     FFF ("friends, fools and family")
                                                                     Seed / Angel
                                                                     Venture
                                                   7      Lenders
                                                                    Banks (warrants)
                                                                    Venture lenders (warrants)
                                                   8      TLO (technology licensing office)
                                                   9      Professors of technical founders
                                                   10     Professional management (brought in by VC’s)




Worksheet = Types of stockholders
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                         9:10 PM
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           Company #              Average           1          2       3       4        5         6       7       8       9       10      11      12      13      14      15         16


Founders                           83.8%         83.1%       80.4%   65.8%   80.0%    78.7%     71.6%   75.7%   97.1%   98.0%    75.4%   95.4%   96.2%   98.7%   56.6%   93.9%      94.8%

Hire #1                             6.8%          6.8%       7.2%    16.4%   14.1%    2.4%       4.1%   11.6%                    3.2%    1.8%                    5.9%               1.0%
Hire #2                             3.5%          4.5%       2.5%     6.1%    1.1%    1.5%       2.1%    9.7%                    2.5%                            4.0%               0.7%
Hire #3                             1.5%          1.0%       1.5%     2.2%    1.0%    1.0%       1.2%                            1.5%                            4.0%               0.5%
Hire #4                             1.2%          0.7%       1.4%             0.8%    1.0%       0.8%                            1.0%                            3.0%
Hire #5                             3.6%          0.5%       1.0%                     0.8%      16.5%                            1.0%                            2.0%
Hire #6                             0.6%          0.4%       0.9%                     0.6%       0.4%                            0.7%                            0.5%

Director #1                         1.2%          1.5%               0.8%    1.5%     1.5%              1.0%            1.0%             1.4%                    1.6%    0.9%
Director #2                         1.3%          1.5%               0.8%    1.5%     1.5%              1.0%                             1.4%                    1.6%    0.9%

Advisor #1                          1.1%                             1.2%                       1.1%    1.0%    1.5%                             1.3%            0.8%               1.0%
Advisor #2                          1.2%                             1.2%                       1.1%            1.5%                             1.3%                               1.0%
Advisor #3                          1.1%                             1.2%                       1.1%                                             1.3%                               1.0%
Advisor #3                          1.2%                             1.2%

Service providers                   0.9%                                              0.4%                              1.0%                             1.3%

Technology licensing office         3.0%                             3.0%

Seed inv                            9.4%                                              7.1%                                       6.4%                            20.0%   4.2%

Reserved                            5.7%                 5.1%                          3.6%                                       8.3%
                                                 100.0% 100.0% 100.0%        100.0%   100.0% 100.0% 100.0% 100.0%       100.0%   100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%




          Worksheet = Detail analysis
          Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                                                               9:10 PM
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                                                    Formation    Hires    Directors     Total       %

                 Co founder #1 -- husband              250,000                          250,000   20.8%    
                 Co founder #2 -- wife                 150,000                          150,000   12.5%    
                 Co founder #3                         300,000                          300,000   24.9%    
                 Co founder #4                         300,000                          300,000   24.9%    
                 Hire #1                                         82,000                  82,000    6.8%    
                 Hires 2-12                                      85,000                  85,000    7.1%    
                 Directors (2)                                                 30,000    30,000   2.49%
                 Director adjustment                                            6,000     6,000   0.50%    
                                                     1,000,000 167,000         36,000 1,203,000   100.0%


                            Outcome                Company was acquired

                              Notes
                                                  Two founders did not want husband/wife founders to control the equity
                                                  First hire paid the company $7k to come work at the company
                                                  Used sunset algorithm, where grants are based on hire date
                                                  Adjusted directors equity to keep it at 1.5%




Worksheet = 1
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                           9:10 PM
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                                                   Formation    Employees   Subtotal     %

                   Co founder #1                     333,333                  333,333 26.8%     
                   Co founder #2                     333,333                  333,333 26.8%     
                   Co founder #3                     333,333                  333,333 26.8%     
                   Hire #1                                         90,000      90,000 7.2%      
                   Hires 2 - 6                                     93,000      93,000 7.5%
                   Venture                                                          0 0.0%      
                   Option pool                                     63,000      63,000 5.1%
                                                    1,000,000     246,000   1,246,000 100.0%


                           Outcome            TBD ("to be determined")

                             Notes
                                             Each founder is full time, and is a Director
                                             Hire #1 was responsible for raising venture financing
                                             Prior to venture $, company raised significant customer advances




Worksheet = 2
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                                                   Formation Employees Dir/Adv             Total

                           Founder                  1,000,000                             1,000,000   65.8%    
                           Hire #1                                250,000                   250,000   16.4%    
                           Hires #2 & 3                           125,000                   125,000    8.2%
                           Directors (2)                                         25,000      25,000    1.6%
                           Advisors (4)                                          75,000      75,000    4.9%
                           TLO                         31,000      11,000         3,000      45,000    3.0%    
                           Seed investors                                                         0    0.0%    
                                                                                                               …
                           Venture                                                                0    0.0%
                           Option pool                                                            0    0.0%
                                                    1,031,000     386,000       103,000   1,520,000   100.0%

                                 Outcome           TBD

                                   Notes
                                                  Technical founder licensed technology
                                                  CEO drove the seed and venture financings
                                                  CEO and directors invested in seed round (not shown)
                                                  TLO carve out was 3%, up to first $xxm of financing
                                    
                                    …              Seed investors include legal feed paid in equity (not shown)



Worksheet = 3
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                   9:10 PM
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                                       Formation      Hires        Directors       Total         %

               Co founder #1                250,000                                  250,000    20.0%   
               Co founder #2                250,000                                  250,000    20.0%   
               Co founder #3                250,000                                  250,000    20.0%   
               Co founder #4                250,000                                  250,000    20.0%   
               First hire -- CEO                        176,000                      176,000    14.1%   
               Other employees                           36,000                       36,000    2.9%
               Directors (2)                                            37,000        37,000    3.0%    
               Venture                                                                     0    0.0%    
                                          1,000,000     212,000         37,000     1,249,000   100.0%

                    Outcome         Company was acquired

                      Notes
                                   Co founders worked full time w/o pay for two years
                                   Founders knew CEO from prior situation
                                   Directors shares accelerated 1 year upon selling the company
                                   Company received venture term sheet and offer to buy company simultaneously




Worksheet = 4
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                                                         Formation    Seed      Hires     Total         %

                             Co founder #1 -- husband      900,000                         900,000 70.9% 
                             Co founder #2 -- wife         100,000                         100,000 7.9%
                             Seed investors                           90,000                90,000 7.1%
                             Hire #1                                            30,000      30,000 2.4%
                             Later hires and pool                              108,000     108,000 8.5%
                             Law firm                                  5,000                 5,000 0.4% 
                             Directors (2)                                    37,000        37,000 2.9%
                                                         1,000,000    95,000 175,000     1,270,000 100.0%

                                         Outcome         IPO

                                           Notes
                                                        Husband retained significant equity position
                                                        Law firm was paid in equity




Worksheet = 5
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                             9:10 PM
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                                          Formation    Hires    Directors      CEO   Subtotal     %

                  Co founder #1              525,000                               525,000      37.6%    
                  Co founder #2              475,000                               475,000      34.0%    
                  First hire                           57,000                       57,000       4.1%
                  Other employees                      63,000                       63,000       4.5%
                  Advisors (3)                                    46,000            46,000       3.3%    
                  CEO                                                    230,000 230,000        16.5%    
                  Venture                                                                0       0.0%
                  Pool                                                                   0       0.0%
                                           1,000,000 120,000      46,000 230,000 1,396,000      100.0%

                        Outcome          TBD

                          Notes
                                        Co founder #1 was full time, and #2 was part time
                                        Advisors included professor who mentored founders
                                        CEO brought in before venture financing raised




Worksheet = 6
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                             9:10 PM
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                                             Formation Employees Dir / Adv                Total        %
                                                           
                         Founder              1,000,000  -220,000                          780,000   75.7%    
                         Hire #1                          120,000                          120,000   11.6%    
                         Hire #2                          100,000                          100,000    9.7%    
                         Directors / Adv (3)                       31,000                   31,000    3.0%    
                                              1,000,000         0  31,000                1,031,000   100.0%


                               Outcome             TBD

                                 Notes
                                                  Founder brought in hires 1 and 2 as, essentially, partners
                                                  Directors and advisor share proceeds upon sale of company




Worksheet = 7
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                                            Formation    Advisors Husband adj     Total       %

         Co founder #1 -- wife               1,000,000                 -400,000   600,000   58.3% 
         Co founder #2 -- husband                                       400,000   400,000   38.8% 
         Advisors (2)                                      30,000                  30,000    2.9% 
                                             1,000,000     30,000             0 1,030,000   100.0%


                    Outcome               TBD

                      Notes
                                         Wife gave an interest in the company to husband when he became a citizen
                                         No written stock agreements -- all done on a handshake




Worksheet = 8
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                     9:10 PM
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                                              Formation        Director        Lawyer         Total        %

                             Founder #1             600,000                                    600,000    58.8%   
                             Founder #2             200,000                                    200,000    19.6%
                             Founder #3             100,000                                    100,000    9.8%
                             Founder #4             100,000                                    100,000    9.8%
                             Director                             10,000                        10,000    1.0%    
                             Lawyer                                                 10,000      10,000    1.0%    
                                                   1,000,000      10,000            10,000   1,020,000   100.0%


                                Outcome      Company was acquired

                                            Founder #1 was CEO and lead founder
                                            Director given (not sold) stock
                                            Portion of legal fees paid in equity




Worksheet = 9
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                                                      Formation        Seed         Hires        Total        %

                    Co founder #1                          500,000                                500,000    37.7%   
                    Co founder #2                          500,000                                500,000    37.7%   
                    Seed investors                                       85,000                    85,000    6.4%
                    Hire #1                                                           42,000       42,000    3.2%    
                    Hires 2 - 8                                                      100,000      100,000    7.5%    
                    Later hires and pool                                             100,000      100,000    7.5%
                                                         1,000,000       85,000      242,000    1,327,000   100.0%



                            Outcome                TBD

                                                  Founders' shares owned directly and by holding company
                                                  Formal valuation analysis done to price equity grants




Worksheet = 10
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                                                    Formation    Divorce   Hires    Directors   Adj       Total       %

                Co founder #1                          500,000 400,000                                     900,000   81.8% 
                Co founder #2                          500,000 -400,000                         50,000     150,000   13.6% 
                Hire #1                                                    20,000                           20,000    1.8%
                Hires other                                                                                      0    0.0%
                Directors (2)                                                         30,000                30,000    2.7%
                                                     1,000,000         0 20,000       30,000    50,000   1,100,000   100.0%


                           Outcome                 Company was acquired

                             Notes
                                                  Ownership redistributed upon divorce
                                                  Founder / CEO adjusted ownership just before selling the company




Worksheet = 11
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                                                     Formation Advisors      Total       %

                                 Co founder #1          500,000               500,000   48.1% 
                                 Co founder #2          500,000               500,000   48.1% 
                                 Employees                                          0    0.0% 
                                 Advisors                         40,000       40,000    3.8%
                                                      1,000,000   40,000    1,040,000   100.0%


                                       Outcome       TBD

                                         Notes
                                                    Founders each owned 50%
                                                    No stock for employees




Worksheet = 12
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                                                     Formation Consultant    Total     %

                                 Founder              1,000,000            1,000,000 98.7% 
                                 Consultant                         13,000    13,000 1.3% 
                                                      1,000,000     13,000 1,013,000 100.0%


                                       Outcome      TBD

                                         Notes
                                                   Sole founder wanted 100% control
                                                   Consultant exercised option




Worksheet = 13
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                                 Formation         Hires       Dir / Adv       Seed inv      Total         %

            Founder                 1,000,000                                                1,000,000   56.6%
            Initial hire                             105,000                                   105,000    5.9%
            Later hires                              239,000                                   239,000   13.5%
            Directors (2)                                           56,000                      56,000    3.2%    
            Seed inv                                                               353,000     353,000   20.0%    
            Advisor                                                                 14,000      14,000    0.8%    
                                    1,000,000        344,000        56,000         367,000   1,767,000   100.0%


                Outcome       Company was acquired

                             Directors given stock at nominal cost
                             Seed $ raised in year 6
                             Advisor represented seed investors at B/D meetings




Worksheet = 14
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                                            Formation    Dir/Adv Financing       Total          %

                   Founder                   1,000,000                          1,000,000 93.90%
                   Directors (2)                          20,000                   20,000 1.88%        
                   Seed investors                                     45,000       45,000 4.23%        
                   Founder debt                                       ???               0 0.00%        
                   Angel investors                                    ???               0 0.00%        
                                             1,000,000    20,000      45,000    1,065,000 100.00%


                         Outcome          TBD

                           Notes
                                         Founder had worked with Directors in prior situation
                                         Initial financing from friends of founder
                                         Does not reflect founder's loan, which will convert to equity upon financing
                                         Angel investor's debt to convert to equity upon financing




Worksheet = 15
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                                         9:10 PM
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                                        Formation         Hires         Dir / Adv     Total         %

                 Co founder #1                500,000                                   500,000    47.4%   
                 Co founder #2                500,000                                   500,000    47.4%   
                 Hire #1                                     11,000                      11,000    1.0%
                 Other hires                                 11,000                      11,000    1.0%
                 Advisors (3)                                                32,000      32,000    3.0%
                                            1,000,000        22,000          32,000   1,054,000   100.0%


                     Outcome         Company was acquired

                       Notes
                                    Founders worked full time at company




Worksheet = 16
Files = 1c22969c-429b-48d3-b034-5f037923170c.xls                                                               9:10 PM
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