Three spreadsheets every founder needs when raising capital
As a startup founder, you need to be a jack of all trades. A typical day might involve talking with investors, sitting in on a product review meeting, scouting for talent, and writing this blogpost with your Marketing squad 😉.
Critical among those responsibilities are your company's finances, especially cash and equity. You might have heard that most startups fail because they don't reach product market fit. That's only half true - they fail because they don't reach product market fit before running out of cash.
Successfully navigating investment rounds and managing equity will be crucial for your startup to survive and prosper. As a founder of Rows, one of my core jobs is to make sure our finances are in order. After going through three funding rounds at Rows alone, I've come back again and again to these three spreadsheets which help me plan our fundraising, and keep everything in check along the way.
A funding round calculator
This is my go-to spreadsheet during fundraising. It helps me plan different funding scenarios, evaluate deals and negotiate with investors as I'm getting term sheets.
As you’re fundraising, you can quickly understand the key parameters of a round based on a few key points:
Valuation: If you read this, you probably already know about pre-money and post-money valuation. The former values your company before the investment, while the latter fixes its value after, the investment, i.e. including the investment amount. In this calculator, there’s no need to restructure the entire spreadsheet. You can simply un/check a box to choose.
Employee option pool: In many funding rounds, the shareholders decide to create or to expand the existing employee option pool to incentivize your team with equity. It matters a great deal if you create this option pool before the funding round, so it only dilutes existing shareholders, or after it, when it dilutes the new investors, too. Again, you can simply switch a checkbox to see the impact.
Pro-rata rights: If this is not your first funding round, you might have given earlier investors pro-rata rights that enable them to participate in the new funding round to maintain their percentage of shares in the company after the round. You might need to create extra space for them and increase the funding round, which you can quickly see in this spreadsheet.
With this funding round calculator, you only need to add input based on the term sheets you received (or the scenarios you’re planning) to simulate the key values for you: the effective pre-money valuation and share price, and your and your team’s full dilution. Here’s how you can use it:
Add the existing shares from your cap table before the round. Feel free to add rows if you want to add all shareholders rather than groups.
Select which investors will do their pro-rata.
Specify the round terms: valuation, employee equity pool and investment amounts.
Finally, you will also see your simulated new cap table structure.
A cap table
On the topic of cap tables, you will want to keep a different spreadsheet - not the calculator above - as a source of truth for your company. This cap table template will help you keep track of the share ownership in your business whatever you do (new convertible notes, funding rounds, employee equity pools or secondaries).
The template starts with the initial cap table when the company was started, and the only shareholders were the founders. Then, for every change in the cap table, we're adding two tables: one for the main input and one for the resulting cap table.
Let's run through an example:
We start with an "Initial" setup where 2 founders - Jane and Joe Doe - each start with 12,500 shares and an initial investment of $15,000.
Before the first financing round, the founders reserve a certain amount of shares for the employee ownership pool. In this case, the founders choose to allocate 9% of the fully diluted shares of the company to employees.
As a result, the cap table is updated. The founders keep their number of shares, but their % of ownership of the company changes, as a result of the shares allocated to employees (See E4 in the Post-Employee Pool I table)
The first financing event is a Seed round. You can add the details of the round: the closing date, pre-money valuation, and round size. Based on those inputs, the spreadsheet calculates the new share price, post-money valuation, and new shares created.
Finally, you'll need to update the cap table with the new shares added to each stakeholder in the round. In this case, new shares are added for the new investors - The “Angels” and “VC” - while the founders don't buy additional shares.
With that example in mind, you can now make the cap table your own (duplicate it in the top right corner of the spreadsheet). This has been an invaluable tool at Rows, helping me easily keep track of all equity events that happened in the last years in a single spreadsheet.
An employee equity tracker
At Rows, we give out equity to all our employees, and I think it’s a best practice done by the best startups everywhere. It rewards employees for their commitment to the company, and it shares the future success of your company with the people that have helped you build it.
So, once you give out equity to your employees, you need to keep track of it. Enters the third spreadsheet, the Employee equity tracker.
Here's how to use it:
First, the Admin page contains the basic parameters of the current state of the cap table: the global number of shares, the total shares allocated to the employee pool, and the share price of the last financing event.
As you award employees with stock options, add them in the Allotments page, in the List table. Each row corresponds to a specific offer awarded to an employee. There are 4 components to the equity allocation:
The date when the shares were allotted.
The number of shares you’re awarding.
The Vesting cliff, which is the amount of time needed to vest the first batch of shares. A typical vesting cliff is one year.
The vesting horizon, which determines when all shares become vested. A 4-year vesting horizon is common among many startups.
The Vesting table calculates the current number of vested shares for each offer awarded. Vesting refers to the point in time when the shares or options in the company are acquired by your employee.
The employee equity tracker - Allotments table in Editor
The real magic happens in the # vested shares column.
The function in cell E2 is a bit long, so let’s dissect it and take the example of “Lilly-Ann Bryan” (the first employee in the Allotments list):
The first thing to do is check if Lilly-Ann has currently 0 vested shares. This is true in 2 cases:
Today’s date is before the vesting cliff.
Lilly-Ann left the company (has a “Leave” date) before the vesting cliff.
This logic is translated in the first section of the formula:
Then, we check if Lilly-Ann has already vested all her shares. This is also true in two scenarios:
Today’s date is after her vesting horizon (given by her Allotment date plus the Vesting horizon in year times 365 days).
Lilly-Ann had left the company after her vesting horizon was reached.
This logic is translated in the first section of the formula:
If none of the above scenarios is true, then we need to calculate the current number of shares Lilly-Ann has vested.
This calculation depends on the employee having left the company already or not:
If she left, the number of vested shares is calculated pro rata to the months or quarters vested until the leave date. The number of shares is rounded up, while months or quarters passed are rounded down.
If she hasn’t left, the number of vested shares is calculated pro rata to the months or quarters vested until today’s date. Shares are rounded up, while months or quarters passed are rounded down.
Lilly-Ann’s case is the latter. She does not have a leave date, and has vested 480 of her allotment of 1,000 shares, corresponding to the number of quarters that have passed relative to the total number of quarters needed to vest all her shares (16, corresponding to 4 years of vesting horizon x 4 quarters per year).
The Employees page gives a helpful summary of the total amount of shares for each employee. Over time, as you give certain employees additional shares due to promotions or performance bonuses, here's where you can see how many shares and which value everyone is vesting with all their allotments.
Finally, in the Dashboard you can see the key metrics of your employee equity pool and have a global view of how much of the full employee equity pool has been allocated, has vested, or is still available to offer.
Tip: Extend this tracker as with alerts to notify yourself or someone in your team of upcoming if certain employees are near their vesting horizon, so you might want to consider incentivising them further. Look for the Email, Gmail or Slack integrations in Rows to do this.
I hope these spreadsheets make running your startup's fundraising process and employee equity easier for you. Add them to your Rows workspace and customize them to help you get work done. If you give them a try, reach out and let me know what you think.
You can duplicate any of these spreadsheets by clicking the “Duplicate to your workspace” on the top right corner of the spreadsheet in desktop, or navigating to the options menu in mobile (on the left), and clicking “Duplicate”.
There's a lot more you can do in Rows. From getting lists of leads with Crunchbase to creating gorgeous reports of your marketing campaigns, there is a Rows spreadsheet for that. Head out to rows.com/templates to start building your next favorite spreadsheet.