Tools › Investing › Private Markets › Cap Table and Dilution › Example

Two post-money safes converting in a Series A: Company Capitalization, price per share and the cap table (Y Combinator Safe User Guide, Example 1)

ToolCap Table and Dilution
SourceY Combinator (2023). Safe User Guide: Quick Start Guide and Post-Money Safe User Guide. Version 1.2, February 2023, Y Combinator, San Francisco. Appendix II, Example 1, question 2, pp. 19–21.
LevelProfessional

Problem

ABC, Inc. has 9,250,000 founder shares, 300,000 options outstanding, 350,000 promised options and 100,000 unissued pool shares. It sold a $200,000 safe at a $4 million post-money valuation cap (Investor A) and an $800,000 safe at an $8 million post-money cap with a pro rata side letter (Investor B). It then raises a $5 million Series A at a $15 million pre-money valuation that includes the converted safes and an option pool increase of 1,695,000 shares (a 10 % available pool after the closing). Find the conversion shares, the Series A price and the cap table after the round. The example and its numbers are Y Combinator's.

Inputs to Enter

  • Holders: Founders 9,250,000 common; options outstanding 300,000; promised options 350,000; unissued pool 100,000 (10,000,000 fully diluted)
  • Investor A: post-money safe, $200,000 at a $4,000,000 cap; Investor B: post-money safe, $800,000 at an $8,000,000 cap, pro rata right
  • Series A: $5,000,000 at $15,000,000 pre-money, pool increase 1,695,000 shares created before the money, 1× non-participating
  • Share arithmetic: whole shares, prices to four decimals (the guide's); exit value $30,000,000 (not part of the guide)
Open the Cap Table and Dilution tool (loaded with this example)

Answers

  • Company Capitalization = 10,000,000 / (100 % − 5 % − 10 %) = 11,764,705; Investor A 588,235 shares at $0.3400, Investor B 1,176,470 shares at $0.6800 (book: the same)
  • Series A price = $15,000,000 / (11,764,705 + 1,695,000) = $1.1144; 4,486,719 shares sold (book: $1.1144, 4,486,719)
  • Investor B pro rata: 10 % of the new shares = 448,671 shares for $499,998.96 (book: 448,671 shares, $499,998.97)
  • After the round: 17,946,424 fully diluted, 16,151,424 outstanding; founders 51.54 %, Investor A 3.28 %, Investor B 1,625,141 shares = 9.06 %, new investors 22.50 %, pool 1,795,000 = 10.00 % (book: the same; lead 20.00 % + others 2.50 %)
  • Effective pre-money valuation of the holders before the round: $1.1144 × 10,000,000 = $11,144,000, 74.3 % of the stated $15 million; the safes take 13.1 % and the new pool 12.6 %
  • Founders' fully diluted ownership falls from 92.50 % to 51.54 %, a dilution of 44.3 %

Notes

The tool's default inputs are this case; press Submit. The Example dropdown also loads question 5 (a Series Seed at $8.8 million pre-money, where Investor B converts at the round price: $0.6577, 3,344,990 shares), Example 2 (a pre-money safe beside a post-money safe: $1.1115, 615,763 shares) and the $10 million acquisition before any round (561,764 and 1,123,529 conversion shares, $0.8901 per share). The guide rounds its pool increase to 1,695,000 shares, prices to four decimals and cuts share counts to whole shares; the tool's whole-share arithmetic does the same. The waterfall at the $30 million exit is the tool's own addition.