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--- using-offtoa:assumptions:financial-assumptions:investments [2016/05/26 19:35]
127.0.0.1 external edit
+++ using-offtoa:assumptions:financial-assumptions:investments [2016/09/19 13:00] (current)
@@ Line 32: / Line 32: @@
   - Price per Share. You are selling a part of your company. This assumption defines the price at which you plan to sell each share of the company. See the answer to the question "What should my price per share be?" below.
   - Class. Are you planning on selling common or preferred stock? See the answer to the questions "What is common vs. preferred? Which should I offer investors?" below.
-  - Liquidation Rights Multiple. If preferred stock, what multiple of their purchase price will investors receive upon a liquidity event prior to general distribution of the remaining funds to all shareholders? According to Wasserman's Founder's Dilemmas, Series A investors in 78% of all start-ups that raised external investments had a liquidation multiple of 1; 9% had a liquidation multiple of 1.1 to 2; 5% had a liquidation multiple of 2.1 to 3; and 8% had a liquidation multiple of greater than 3.
+  - Liquidation Rights Multiple. If preferred stock, what multiple of their purchase price will investors receive upon a liquidity event prior to general distribution of the remaining funds to all shareholders? According to Wasserman's __Founder's Dilemmas__, Series A investors in 78% of all start-ups that raised external investments had a liquidation multiple of 1; 9% had a liquidation multiple of 1.1 to 2; 5% had a liquidation multiple of 2.1 to 3; and 8% had a liquidation multiple of greater than 3.
 ==== Third Tab on this Page: Options ====
@@ Line 40: / Line 40: @@
 This is the page where you will set up the option pool for rewarding employees (and others) with equity in the company. The first three fields are the most important:
-  - Current value of one stock option: When you want to reward individuals (whether employees or consultants), it is helpful to think about the economic value of an option. Notice that this is not the strike price; the strike price (aka exercise price) is stated in the stock option agreement and is the price that the option holder would pay to exercise the option, and thus convert the option into an actual share of the company. It is also not the price the stock would be worth at the time of the exercise (for a variety of reasons, not the least of which is that we don't know when the option holder will exercise the option nor what the company would be worth at that time). It is also not the difference between these two prices, although that's closer to the right concept of economic value; after all, if the option holder pays $1.00 and receives a share worth $5.00, one could say that the economic value is $4.00. However, the true economic value of the option must consider all the factors of time value of money, probabilities of the company's success, risk, and so on. For the purposes of a start-up business's financial plan, there is no need to compute a precise economic value of an option using, say, Black-Scholes. It suffices to state some economic value for an option so that you can compute equitable option packages for employees and others. Here is one approach to determining the "right" economic value:
+  - Current value of one stock option: When you want to reward individuals (whether employees or consultants), it is helpful to think about the economic value of an option. Notice that this is not the strike price; the strike price (aka exercise price) is stated in the stock option grant and is the price that the option holder would pay to exercise the option, and thus convert the option into an actual share of the company. It is also not the price the stock would be worth at the time of the exercise (for a variety of reasons, not the least of which is that we don't know when the option holder will exercise the option nor what the company would be worth at that time). It is also not the difference between these two prices, although that's closer to the right concept of economic value; after all, if the option holder pays $1.00 and receives a share worth $5.00, one could say that the economic value is $4.00. However, the true economic value of the option must consider all the factors of time value of money, probabilities of the company's success, risk, and so on. For the purposes of a start-up business's financial plan, there is no need to compute a precise economic value of an option using, say, Black-Scholes. It suffices to state some economic value for an option so that you can compute equitable option packages for employees and others. Here is one approach to determining the "right" economic value:
     - Select the option pool size you want based on your management philosophy. For example, if your founders are purchasing 1,000,000 shares and you want your employees and founders to 50/50 partners, then create an option pool with 1,000,000 shares.
     - Select some economic value for one stock option. (Try $1.00)
     - State all the rest of your assumptions concerning values of initial option packages for new employees (on your Assumptions/Costs/Personnel/Employees screen) and whether you plan to pay all your employees with cash (on the advanced tab of your Assumptions/Costs/Personnel/Employees screen).
     - Examine your capitalization table. Specifically, see what happens to the number of options granted.
-    - If twice as many options are distributed than the desired size of the option pool, then double your economic value. If half as many options are distributed than you want to distribute, then halve your economic value, etc.
+    - If twice as many options are distributed than the desired size of the option pool, then double the economic value. If half as many options are distributed than you want to distribute, then halve the economic value, etc.
   - Annual increase in stock option value. In the previous assumption, you set the first year's value of a stock option. At what rate do you expect this to increase in subsequent years? If you expect the company to double its value each year, then you might set this to 100%. If you expect the company to triple its value each year, then you might set this to 200%. Note the effect of setting this to, say, 100%, and set employee expectations accordingly: An employee being awarded 25,000 stock options one year should expect to be awarded 12,500 stock options the following year, and it would be an equivalent award.
-  - Option pool size. Select the option pool size you want based on your management philosophy. For example, if your founders are purchasing 1,000,000 shares and you want your employees and founders to 50/50 partners, then create an option pool with 1,000,000 shares.\\
+  - Option pool size. Select the option pool size you want based on your management philosophy. For example, if your founders are purchasing 1,000,000 shares and you want your employees and founders to be 50/50 partners, then create an option pool with 1,000,000 shares.\\
 The remaining four fields describe some uses for the option pool other than rewarding of employees:\\
   - How many board members. How many members do you expect to have on your board of directors?
@@ Line 66: / Line 66: @@
 **[[https://www.offtoa.com/wp/?p=247/|How does a start up company get money?]]**
-**[[:faqs:why-founders|Why do I need a founders' round?]]**
+**[[:faqs:investments:why-founders|Why do I need a founders' round?]]**
 **[[https://www.offtoa.com/wp/much-money-ask-investment/|How much money should I ask for from investors?]]**
-**[[:faqs:invest-timing|What is the right timing for investment rounds?]]**
+**[[:faqs:investments:invest-timing|What is the right timing for investment rounds?]]**
-**[[:faqs:price-per-share|What should my price per share be?]]**
+**[[:faqs:investments:price-per-share|What should my price per share be?]]**
-**[[:faqs:common-or-preferred|Should I offer investors common or preferred shares?]]**
+**[[:faqs:investments:common-or-preferred|Should I offer common or preferred shares to investors?]]**
-**[[:faqs:founders-reinvest|Can founders invest in the company after the founder's round?]]**
+**[[:faqs:investments:founders-reinvest|Can founders invest in the company after the founder's round?]]**
-**[[:faqs:inkind-investments|How do I handle in-kind investments?]]**
+**[[:faqs:investments:inkind-investments|How do I handle in-kind investments?]]**
+**[[:faqs:investments:invest-payoff-loan|Can I pay off a loan with an investment round?]]**
+**[[:faqs:investments:warrant|What is a warrant?]]**
+**[[:faqs:investments:how-warrant|How to create a warrant in Offtoa?]]**
 **[[http://www.linkedin.com/pulse/startup-loan-investment-alan-al-davis|Should I get a loan or ask for investments?]]**
@@ Line 86: / Line 92: @@
 **[[http://www.linkedin.com/pulse/20141104152956-79891538-accounting-for-kickstarter-in-startups|How do I account for funds from Kickstarter?]]**
-**[[:faqs:items-per-page/|How do I get more investments to display on each page?]]**
+**[[:faqs:investments:items-per-page/|How do I get more investments to display on each page?]]**

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