We built a tool to help founders understand how modern fundraising (with safes) works, and how much dilution you can expect when raising money.
The project is open-source. The code is a mess right now, but it'll get better I promise. You can also help with that.
We didn't build this to make money. We genuinely did it because we were looking for it, and couldn't find it.
We're in fact in the process of fundraising for a company, and at first glance the process looks simple. Just an excel sheet will do! But then the more we dug into it and tried different simulators, the more we realized that it's more complex than it looks.
We even signed up to Pulley, Carta and others just to run simulations. But they're a bit confusing.
TL;DR: Understanding modern startup funding and knowing how much dilution you'll face is hard. We built a tool that'll hopefully help with that. You can add Post-money Safes, priced rounds and issue options to employees, and you can see how that affects your ownership at every step. You can also simulate an Exit scenario and see how much money you'll be left with.
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Some examples of complex stuff:
- There are many different types of safes. They all convert at the first priced round, but in different ways. Some are through discount, some are uncapped, some have a fixed valuation cap, and some have both a discount and a valuation cap.
- All safes (before first priced round) convert at the same time. They don't dilute each other, which is what happens in the rest of fundraising.
- Investors often require you to set aside some options. This one is particularily nasty. Basically, if an investor expects you to set aside 10% as options, and expects to get 10% equity, that's what should appear in the subsequent cap table. However, calculating the options is difficult, and is often a circular calculation (even Kirsty Nathoo from YC says it's complex and avoids showing the calculation in the Safe video "Understanding SAFEs and Priced Equity Rounds")
- Safes and priced rounds can have pro-rata, but don't always exercise it
- Pro-ratas of safes are taken from the priced round money, so you'd expect the safe holder's equity to remain the same if they exercise it. BUT ... it gets diluted by the new options issued.
- Safes can have an MFN provision, which defers the valuation discussion/calculation until the moment the priced round is about to close. With a mix of discounts, uncapped and valuation caps, it gets tricky to know which deal is "better".
- ...
Assumptions and limitations:
- Only post-money safes and priced rounds.
- No down rounds. There's a bit more complexity around liquidation preferences and anti-dilution rights - we don't support that now. It only matters if you're simulating a "bad" situation. But come on, it's a simulator — Be optimistic.
- No pro-rata caps. We might add that soon, to fully support the YC standard deal. But for now, if an investor gets a pro-rata, they can exercise either all of it (keeping their original ownership) or none.
- Safes' pro-ratas disappear after the first priced round. (I think this is what happens normally?)
- Remaining available options get redistributed evenly at exit.
- The round is the investor. For the sake of simplicity, consider "Series A" as the combination of all series A investors into one, super-investor.
Let us know what you think!
I'd also love to see how much employees would get, not just me. I know people generally care more about themselves, but seeing how it would work if you gave a lot more to employees would be great.
My standard experience has been
-"This offer includes X,000 share/option units"
-"great, how much is that worth in dollars?"
-"well, we can't tell you, but there are Y00,000 shares in total, and the last investor paid $Z million for W% of the company".
"OK, that's very useful. If I assume my shares are as good as the investor's shares, I can estimate my shares' market value. Did the investor get anything else of economic value for his investment? A liquidation preference? Right to invest in future rounds? A board seat? Sweetheart deals with his favourite companies? "
- "Let me check that with Finance"... ... ... "I'm sorry but I can't tell you that"
- "OK, I understand that's confidential. Can I at least get the same deal as him? I'll trust you to give me my extra benefits when they accrue, and I waive the board seat and the backhand deals"
- "Absolutely not."
- "Well then, it's very hard for me to put a value on these shares/ options. Even though I'm willing to take some level of risk in my compensation, and value these close to market value, you won't give me enough information to let me value them at anything other than $0"
- "I've checked with $BIGWIG and actually we can make an exception in this case: we can offer you (X + 1),000 shares/ options. How does that sound? "
- "..."
I know what options are. I trade options on the public market frequently and make some beer money.
But when it comes to my stock options in the private startup I work at, I'm lost, mainly because the share price is shown as one of two numbers: Fair Market Value, and Issue Price.
Let's say I joined after a funding round where the company earned a $5B valuation. I'm given the option to buy 10,000 shares at $4/share, which is the "Fair Market Value" price. But the investors paid $16/share. How much are my shares actually worth? $4 or $16? I THINK the answer is actually "neither", since my shares have no liquidity without using a private equity trading firm like Forge. But is the $5B valuation determined from the FMV or the issue price?
But ignoring that, let's say we IPO with a $25B valuation. Ignoring dilution, if my shares were worth $4 before, they're now worth $20/share, and I've profited $160K. But if my shares were actually worth $16, they're now worth $80, for a profit of $800,000.
Which is it really?
Also, on landing page, just go straight into the New Startup screen so you don't have to click "New Startup" since there is no other option when you have none listed.
Was looking for a "Run Simulation" button, but it was not at all obvious that I should hover over the blocks added to see the "output". Just show the output on-screen :).
UI suggestion: allow click-drag on percentage boxes. I was tweaking percentages between 4 founders in order to come up with certain amounts post-round and it was a bit trial and error. On mobile it would have been tons easier if I could just nudge the values up and down rather than having to type them all in again.
It'd also be cool to see hypothetical valuation of equity on the line/edges too.
This is an awesome tool, btw! Thank you for putting it together!
This is where I see a lot of people make - very costly - mistakes in terms of dilution, they start a hardware startup or some other capital intensive track but use SaaS levels of capital requirement and timing to plan their liquidity. This obviously can impact the business in very negative ways (or can even cause it to go under). So to inject some realism into the figures at various phases using templates might be a useful thing.
Another thing you may want to consider is to put sweat equity and funds supplied by the founders in there, as well as a way to administer friends-and-family rounds, and to be able to play through a founder departing scenario. I realize those are complex things to do, and obviously you're under no obligation to do any of this.
Thank you for making this and for putting it out there.
Edit: "You get $InfinityB" I think I won.
https://www.fundingsimulator.com/?data=EL%2BVcsg%3B%3BYou%2C...
if you have to pay taxes but don't have cash to do it, you're losing. fix something
If your accountants are telling you when it’s too late; you are losing. Hard.
I don't understand what Val(post) is, what 10% options actually means (who gets the options?) what "Other pro-rata" means, etc.
TL;DR: A really simple funding contract.
Developed at YC, often used by YC companies. Investor gives money now and, in the future, gets a discount on the company's shares or pays a lower price when the startup does well.
This is MUCH cleaner/nicer than e.g. Carta's simulation tool. My co-founders and I will definitely be using this.
Thank you for putting this together.
All-in-all quite cool.
And as an angel investor, it would be great to have a viewpoint to see how your investment in a company is doing. E.g. you enter how much the company has raised on SAFEs, then series a, b, etc, to see where you end up. This can be more complicated than you think, as you often see companies raise on a SAFE/CLN, then a priced round or two, then a bridge on a SAFE, then another priced round, etc.
Ta! :)
Broadly syndicated convertible note seed rounds are a relatively new innovation; what preceded them was "friends and family" rounds of $50-100k followed immediately by an A round, which was a galactic pain in the ass for founders trying to get their companies up on their legs. A seed lets you confirm your hypothesis about PMF without doing board meetings.
The C.W. is that seed rounds today, no matter who's doing them, are done with SAFEs.
1. Enable multiple branches to show different simulations
2. Allow me to save it and share it via a link
Most terms are pretty standard now. And most of them have good reasons for existing — usually to align the founders and investors. Just because a term is complex and could benefit the investor doesn’t mean it’s meant to mislead.
But, I’m interested in some examples that might shake my opinion about up!
What's interesting is that virtually every word in those docs is there to protect the investors, most at the expense of the founders and other existing shareholders.
Ok, so maybe that sounds obvious. Why would it be otherwise?
Well, take a look at the initial docs when a company is founded. The "market" is for those docs to be as simple as humanly possible. A certificate of incorporation is a page or so. No protections at all for the founders in there, most often.
But when you bring in investors, the market is to lard up that same document with investor protections and no protections for founders.
That's how founders get screwed. It's not that the complications are there to screw founders. It's that the standard forms are built with one party's interests in mind.
May you please do the same from a hiring employee's perspective, in such a manner where, the Founding Folks can use this to understand their funding, then also understand what it means to bring on Founding Engineer, Founding Sales, etc... and then all the child departments and their impact in liquidity/stock/options RSIs etc?
And then have an ELI35 print out for the Prospectives?
I've been using Note Genie[1].
The first caller wants something. The other has it. The founder can only play that game if the investor calls first.
That would make learning about a company way more interactive. Although I'm not versed enough in startup culture to know how much of this data is even public.
Very illustrative for new founders to learn how much revenue they'll need to generate to see any useful return if they raise venture money.
To that end, I'd add some of the more annoying aspects of priced rounds, like liq pref, etc
How about if we go for an IPO and then generate profits?
Thank you!!
If only building the company and going through all those funding rounds was as easy!
SAFE raise $750k, cap $4m
Series A raise $8m, val $40m, options 10%, pro-rata
Series B raise $20m, val $100m, options 10%, pro-rata
Exit $300m
Single founder keeps 49% of equity which is $147m. Three founders each keeps 16% and $49m.
pretty limiting. will keep my eye on this.
I don’t understand why people are so quick to start giving up control out of the gate for software companies. Servers are cheap, it’s not like in say, manufacturing where you need a factory.
You’re gonna let some VC bro tell you what to do for a SaaS product? Why exactly? Just go to market on the cheap.
I’ve had every quarter profitable since founding, and never taken a dime in VC. I’m not going to be a billionaire, but that’s fine, I want to chart my own path.
Would it not be financially more prudent to hire/consult experts, particularly if you can get access to a startup/accelerator program? Even without easy access, there is no dilution of ownership.
0-PMF/100 customers: Bootstrap it
PMF-Scale: VC Fund if you can show 100% growth each year and forward. If the market is big enough (TAM etc), This can become a billion dollar company and for this to happen fast enough, you will need funding. Also, the reason you need funding here is because it is very tough to scale a business slowly. Either you grow fast from here or die/stay average growth.
Again, like you said, nothing wrong with "chart my own path" but VC funding has its needs. It's just that most people try to raise funding way too early and hence cannot keep up with the growth requirements and eventually either die or sell/pivot for peanuts.
This makes sense, but I wonder how truly "necessary" funding is. I understand that funding very (relatively) quickly can help turn a "eating ramen for dinner" salary to a a-regular-job levels of salary which is very good. But is there a business risk to grow "organically"/through word of mouth? Assuming it is possible to grow the company only working part time (which is admittedly a very big assumption), bootstrapping sounds slightly better.
> It's just that most people try to raise funding way too early and hence cannot keep up with the growth requirements and eventually either die or sell/pivot for peanuts.
Thanks, that's insightful!
The problem is that lot of entrepreneur need funding to even start because they don't have enough resources to start something (may be they need cash, people etc). But VC dont fund because you need cash. They fund because you are able to convince them somehow that you are building a unicorn.
It's a dark forest. They see you, they covet your traction, and then they raise to outmaneuver you.
You might win, but that's a tremendous amount of stress dealing with a better-capitalized foe.
The number of “zero interest rate” business that’s still need to be culled is too damn high.
Jokes aside, it's actually a pretty good tool
Completely disregarding the ownership complications that arise, just a few clicks in to your webapp (super nice work btw) shows how much bloated knowledge you need.
Does it make sense for early stage startups to hire a CFO to make sense of all these things? Absolutely not. So better make sure your angel package includes their budget. /s
Funding isn't there for your best interest, it's there to make other people money. It lets you borrow time, and you still work for someone else.
very well done site though, maybe i will be smart enough to use it some day.
It's like saying using a calculator to add up the last few months of income/expenses is a "financial simulator".
I feel many would object to "simulator" being applied to something that doesn't represent a pre-existing thing with any faithfulness, however.
Sure, you could have done the same thing in a spreadsheet, but I think the UI is what differentiates a simulation from a calculator
Yes there are some common simulator features that it doesn’t have (there’s no ‘prediction’ or randomness involved) but that doesn’t mean it’s not in the category of simulation.
It helps simulate, or model, specific scenarios. Lawyering about words is unwarranted.
“All models are wrong some models are useful.” This is a very primitive model but from the comments here I can see that some people find it useful, so that’s a win.
That's a surprising result, and not very user friendly.
Some ideas to make it better:
- make it impossible to get into that state
- tell me what I did wrong so I can correct it
