money for startup class

[hyunjimoon]

class covered lawyer and vc simulation where we assumed celestial startup with two safe and facing series a round with term sheet including charter (pro rata),

resources

Blank Sim Term Sheet '24 MfS.pdf
Cap Table for Sims '24 MfS .xlsx

Concept	Desirability Score	Feasibility Score	Reason behind scoring	Present in Term Sheet
Pre/Post Valuation	5	5	Critical for deal structuring; requires probabilistic reasoning for future valuations; easily implementable in CIVA's world model	Yes
Option Pool	5	5	Important for employee compensation and dilution calculations; useful for estimating future pool sizes; straightforward to implement	Yes
Liquidation Preference	5	4	Crucial for investor returns in various exit scenarios; requires modeling of exit events; implementable but complex waterfalls may be challenging	Yes
Anti-dilution Provisions	4	4	Important for protecting investor ownership; requires modeling of future rounds; implementable but may need careful modeling of different types	Yes
Conversion Rights	4	4	Important for preferred stockholders; needs reasoning for optimal conversion timing; can be modeled but may require complex decision logic	Yes
Preferred Stock Terms	4	4	Critical for investor rights and returns; useful for modeling different scenarios; implementable but may require detailed modeling of various terms	Yes
Drag-Along Rights	3	3	Important for facilitating exits; useful for modeling acquisition scenarios; can be implemented but may require complex modeling of shareholder decisions	Yes
Pay-to-Play Provisions	3	3	Important in down rounds or subsequent financings; requires modeling of future funding needs; implementable but may need detailed modeling of investor behavior	No
Vesting Schedules	3	4	Important for founder and employee retention; useful for modeling retention scenarios; relatively straightforward to implement	Yes
Registration Rights	2	2	Less critical in early stages, more important near IPO; limited need for probabilistic reasoning; can be modeled but may not provide significant insights in most scenarios	Yes
Information Rights	2	3	Important for investor oversight, but less critical for deal structure; limited need for probabilistic reasoning; can be implemented but may not significantly impact valuation models	Yes
Right of First Refusal	2	2	Important for controlling share transfers, but less critical for deal structure; limited need for probabilistic reasoning; can be modeled but may be complex to represent all scenarios	Yes

recordings

I apologize for the oversight. You're right, and I'll create a more comprehensive table that includes all classes up to May 13, incorporating the recording links in the date column as requested. Here's the updated table:

Date	Key Message	Summary of Reading List
Apr 1	Introduction to course logistics and structure	Syllabus, Lawyer Simulation Rounds document, VC Simulation Rounds document, Fact Pack: MIT Celestial, Inc.
Apr 3|Startup investment stages, vc, founder control, funding env, valuation	Term Sheets 101 and Team Formation	Video link (to be posted), Feld's Venture Deals Chapters 3-7 (emphasis on 4-6), "How to Use a Startup Lawyer Effectively" article
Apr 8|safe	Safes & Convertible Notes 101; Term Sheets Continued	Feld's Venture Deals Chapter 8, 3-part video on Safes & Notes, YCombinator's User Guide to Safes (Q&A sections), Safe legal overviews from Cooley and DLA Piper, Convertible note overview from Cooley
Apr 10|IP ownership, legal consideration, tlo	Meet the Lawyer: Matt Reardon from Goodwin Procter	NVCA Model Term Sheet, WilmerHale Deal Terms Report 2024, Pillar VC guidance on finding and using a lawyer
Apr 17	Angel Investing: The Earliest Slice of the Funding Spectrum	LaunchPad Venture Group website, Seraf Compass blog, AngelList website
Apr 22	Lawyer RoundUp	Completed Sim Summary template and remaining questions/conflicts
Apr 24|Water treatment, hydrogel, funding	The Entrepreneur's Perspective: Ammar Alali from Eden Geopower	Eden Geopower website, press release about $12M seed round, Globe article about alt-fracking technology
Apr 29	VC Sector Focus: Materials with Carmichael Roberts	Carmichael's bio, Material Impact origin story, TV chat about Carmichael's background and BEV
May 1|lily	Institutional Seed VC: Lily Lyman from Underscore VC	Lily's bio, Underscore website, framework for building relationships with VCs, article about Lily's leadership, Underscore's content and community building approach
May 6|(think) kike vc	VC as a Business	Feld's Venture Deals Chapter 12, various articles on VC fund mechanics, decision-making, and biases
May 8	Life Cycle VCs: Kent Bennett from Bessemer Venture Partners	Bessemer website (focus on Kent's background and anti-portfolio page), Kent's investment memo for Toast, video on Bessemer's investment approach
May 13	Compare and Contrast VC Rounds: Conclusions	Balanced view of fundraising's role in a founder's life, team's summary of negotiated deal terms

[hyunjimoon]

self q&a

Q1: What's the thought process behind a big investor coming in leading to smaller percentages of ownership for SAFE investors if you don't do a valuation cap?

The key issue here is dilution. When a large investor (e.g., a Series A investor) comes in with substantial funds, without a valuation cap on the SAFE, the amount invested by early SAFE investors converts at the same price as this later investment. This results in a smaller percentage of ownership for those early SAFE investors. A cap ensures that SAFE investors have a predetermined limit on the price per share at which their investment converts, protecting their equity stake from being diluted as much when large sums of money are introduced【7†source】【8†source】.

Q2: What did Shari mean by a valuation cap giving an "insider price"?

The "insider price" refers to the benefit that SAFE investors receive when a valuation cap is in place. Even if the company is valued much higher in later rounds (e.g., $60 million), SAFE investors convert as if the valuation were capped (e.g., $5 million). This allows them to buy shares at a much lower price than the newer investors, thus rewarding them for their early risk by giving them a better ownership stake at a "discounted" or insider price【7†source】【8†source】.

Q3: Where does the share price of $4 in Example 3 come from? Is it $49 from Example 1 divided by 12 (the proportion of post-money and val cap)?

The share price of $4 in Example 3 comes from applying the valuation cap. The difference between examples 1 and 3 is that Example 3 has a cap of $5 million, while Example 1 does not have a cap and uses the full $60 million valuation. The cap reduces the effective valuation for the SAFE investors, lowering the price per share to $4. While the exact calculation for $4 may not be as simple as dividing $49 by 12, it is conceptually tied to how the valuation cap drastically reduces the conversion price for SAFE holders【8†source】.

Q4: What's the intuition behind higher share prices for founders ($40) and lower share prices for SAFE investors ($4) not being good?

This situation indicates a large disparity in ownership stakes. The founders are holding shares valued much higher, but the SAFE investors, having a lower share price, will own a larger portion of the company relative to their investment because of the cap. This leads to significant dilution of the founders' ownership, which can be problematic because it reduces their control over the company. In the long run, such disparities can lead to misalignments in incentives between founders and investors【7†source】【8†source】.

Q5: Do founder and new money (latest round investor)'s share prices always match?

Not necessarily. Founders often hold common stock, while new investors in later rounds typically buy preferred stock at a negotiated price. Founders' shares are usually priced based on their initial contributions (sweat equity) and do not change during subsequent funding rounds unless they sell new shares. New investors set the share price based on the company's latest valuation, which can vary significantly from the price of the founders' initial shares【7†source】【8†source】.

Let me know if you'd like more clarification!

[hyunjimoon]

• this video explains safe conversion best
  youvideototext.com - How the Post-Money SAFE (Simple Agreement for Future Equity) works - [English (United States)].txt

• carta's video when post money valuation is lower than valuation cap, share price for safe investor is lower (ratio: cap / post)

Mary. Mary gives you $1 million on a safe note, but remember, when you raise on a safe you're not actually giving Mary any shares yet. You're going to give her shares in the future, but not today, meaning right now, you don't need to set any kind of share price. Now, it's important to remember setting a share price is a big deal, because when you do that, you're placing a value on your company. For example, if you have 100 shares, and the price per share is $1 then guess what? Your company is valued at $100 this is what a valuation is. So back to Mary, since she's giving you money on a safe, you're not bringing shares into the picture yet, which means you're not setting a valuation for your company. This is pretty risky for Mary, after all, she's giving you a million bucks without yet knowing the current value of her investment. So in order to protect Mary, you need to provide her with a valuation cap. You set this valuation cap at $5 million all right, cut to a year later. You're now at your series A and you have a new investor named William. This time, it's a priced round, meaning William gives you money, and for that money, you give him shares. This means you now have a share price, which means you've officially set a valuation for your company. You and William decide that your whole company is worth 10 million and each share is worth $1 this means in total, your company has 10 million shares, and the price for each share is $1 for his investment, William gives you the same thing Mary did $1 million and in exchange, you give him 1 million shares, amounting to a 10% stake in your company. Just to recap, the valuation is 10 million and the share price is $1 great. So it's now time to convert Mary's investment from a year ago into shares. This is where the valuation cap comes in. Remember, William valued your company at ten million but because Mary set a valuation cap of 5 million, you're actually gonna give Mary her shares as if the company is valued at $5 million today. So what does that actually mean? You gave William a million shares, right? And Mary invested the same amount of money that he did. So how many shares are you supposed to give to Mary? Luckily, the math to figure this out is pretty simple. First, you just need to figure out Mary's share price. To do this, just take the valuation cap that you set with her and divide it by the official valuation that you set with William in the series A this gives you Mary's share price. And notice, while William's paying $1 a share, Mary will actually receive her shares at 50 cents per share. Now Mary invested $1 million at 50 cents per share, meaning when you convert her safe investment, you'll give her 2 million shares or a 20% stake in your company. Right away, you can see how the valuation cap is an incentive for Mary to come in early and take on that extra risk. she and William both invested the same amount, but since Mary came in earlier she actually got twice the number of shares that William, did this is why the valuation cap is an important incentive to get early stage investors on board and the.