Posts Tagged: share structure of a company

The Arithmetic of Deal Structuring Using a Capitalization Table

The first step in structuring a deal is to determine how much capital your company needs to raise using a capitalization table. This calculation should be determined by your milestone plan translated into numbers within the financial model. You will be able to see how much is needed to get you through the next critical stages of your company’s growth and the cash flow needed to do so. Be realistic about two things. First what you plan for will likely take twice as long and will cost twice as much than you expected.

The second step is to determine the pre-money valuation. This is the tricky part because it’s a pricing decision that affects the share price you will be setting for the next round of financing.

As you determined in the prior round the milestones to get your company to the next level of development and you succeeded in accomplishing them then you have built enterprise value or the worth of your company. This means the value or price of shares in your company would have increased and from your perspective you can give investor a good argument why an increase in share price is warranted.

The other part of the equation is that the investor will have a say as well as to what they see as the pre-money valuation. The preceding is part of the negotiating process around valuation.

But keep in mind these principles when filling out your capitalization table: Read more