Cap Table Training Combined Handouts (1)

8/12/2019 Cap Table Training Combined Handouts (1)

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C 2012 G D M

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C 2012 G D M

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erfect Baleroforma Cap Tableull Diluted Basis

Founders Round 1Pre Money Investment at

Investment $ Shares % of Total Value 2.00$ Shares %

ounders

Aaron 20,000 200,000 33.33% 200,000ill 20,000 200,000 33.33% 200,000

Chris 20,000 200,000 33.33% 200,000

Round 1

Doreen 200,000 100,000

Options 36,842

otal 60,000 600,000 100% 1,200,000 200,000 736,842

Value 1,200,000$ 1,400,000$Shares 600,000 736,842$Price/Share 2.00


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erfect Bale

roforma Cap Tableull Diluted Basis

Founders Round 1 S

Pre Money Investment at Pre Money

Investm

atInvestment

$ Shares

% of

Total Value 2.00$ Shares

% of

Total Value $

ounders

aron 20,000 200,000 33.33% 200,000 27.14%ill 20,000 200,000 33.33% 200,000 27.14%

hris 20,000 200,000 33.33% 200,000 27.14%

ound 1oreen 200,000 100,000 13.57%

eires Alains Angels 1,750

ptions 36,842 5.00%

otal 60,000 600,000 100% 1,200,000 200,000 736,842 100% 7,368,420 1,750

Value 1,200,000$ 1,400,000$ 7,368,420$ 9,118$

Shares 600,000 736,842$ 736,842 911$

Price/Share 2.00 10.00 10


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erfect Bale

oforma Cap Table

ully Diluted Basis

Founders Round 1 Series A

Pre Money

Investment

at Pre Money

Investment

at Pre Money

In

Investment

$ Shares

% of

Total Value 2.00$ Shares % of Total Value 10.00$ Shares

% of

Total Value $

ounders

aron 20,000 200,000 33.33% 200,000 27.14% 200,000 21.93%

l 20,000 200,000 33.33% 200,000 27.14% 200,000 21.93%

hris 20,000 200,000 33.33% 200,000 27.14% 200,000 21.93%

ound 1

oreen 200,000 100,000 13.57% 100,000 10.97%

eires A

ains Angels 1,750,000 175,000 19.19%

eires B

vestor

ptions 36,842 5.00% 36,842 4.04%

otal 60,000 600,000 100% 1,200,000 200,000 736,842 100% 7,368,420 1,750,000 911,842 100% 4,559,210

Value 1,200,000$ 1,400,000$ 7,368,420$ 9,118,420$ 4,559,210$ $

Shares 600,000 736,842$ 736,842 911,842$ 911,842 $

Price/Share 2.00 10.00 10.00 5.00


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rfect Baleoforma Cap Table

ly Diluted Basis

Founders Round 1 Series A Series B

Pre Money

Investment

at Pre Money

Investment

at Pre Money

Investment

atInvestment

$ Shares

% of


% of


% of


% of

Total

undersron 20,000 200,000 33.33% 200,000 27.14% 200,000 21.93% 200,000 17.99%

20,000 200,000 33.33% 200,000 27.14% 200,000 21.93% 200,000 17.99%

ris 20,000 200,000 33.33% 200,000 27.14% 200,000 21.93% 200,000 17.99%

und 1

reen 200,000 100,000 13.57% 100,000 10.97% 100,000 8.99%

ries A

ins Angels 1,750,000 175,000 19.19% 175,000 15.74%

ries Bestor 1,000,000 200,000 17.99%

ries CF

tions 36,842 5.00% 36,842 4.04% 36,842 3.31%

arrants

tal 60,000 600,000 100% 1,200,000 200,000 736,842 100% 7,368,420 1,750,000 911,842 100% 4,559,210 1,000,000 1,111,842 100%

Value 1,200,000$ 1,400,000$ 7,368,420$ 9,118,420$ 4,559,210$ 5,559,210$ Shares 600,000 736,842$ 736,842 911,842$ 911,842 1,111,842$ Price/Share 2.00 10.00 10.00 5.00 5.00

Warran


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erfect Bale

roforma Cap Table

ully Diluted Basis

ale of Company

Sale at $17,500,000

At Face Sales Proceeds 17,500,000

Shares % of Total Value Options Proceeds 73,684 Shares % o

ounders Warrants Proceeds 1,500,000

aron 200,000 9.64% $1,686,906 200,000ll 200,000 9.64% $1,686,906 Total Available 19,073,684 200,000

hris 200,000 9.64% $1,686,906 200,000

ound 1 Series C:

oreen 100,000 4.82% $843,453 Preferred Dividends 1,500,000 100,000

Units 6,809,630

eries A Warrants 2,042,889

ains Angels 175,000 8.43% $1,476,042 Total to Series C 10,352,519 175,000

eries B

vestor 200,000 9.64% $1,686,906 Founders: 200,000

Aaron 1,568,778

eries C Bill 1,568,778

VF 740,741 35.70% $6,247,798 Chris 1,568,778 740,741 3

Doreen 784,389

Plains Angels 1,372,680

Investor 1,568,778

ptions 36,842 1.78% $310,745 36,842

Warrants 222,222 10.71% $1,874,339 Key Employee 288,985 0

otal 2,074,805 100.00% $17,500,000 Total 19,073,684 1,852,583 10

Value / Share

4.35806932


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Scenarios for Cap Table and Dilution Discussion.

The scenarios below are to be read together with the Perfect Bale financial modelexample available on the Plains Angels site.

1. Formation Founder Funding

Three founders of Perfect Bale Aaron, Bill, and Chris. Each contributes $20,000 to form the company, as well as their intellectual property

related to the idea. Each is issued 200,000 shares of common stock ($0.10 per share).

The initial capital is expected to pay for initial prototype development and testing. They work with a lawyer to create initial organizational documents and to issue the three

stock certificates.

2. Friends and Family Round

Its been three months since Perfect Bale was formed. Due to unexpected costs in developing the prototype, the initial capital was only enough

to complete rough design work and build a prototype of the insertion hardware.

Perfect Tag also realized that to make the edible tags, they required more specializedscientific and engineering knowledge regarding chemistry and nutrition testing. This willrequire additional capital.

Perfect Bale desires to raise $200,000 from their friends and family to complete thedevelopment of the prototypes and to engage someone with the proper scientific andengineering knowledge to complete the edible tags.

Perfect Bale also desires to file a patent application on the technology. To raise the money, Perfect Bale offers common shares at $2.00 per share. They manage

to convince Aarons wealthy Aunt Doreen to fund the entire amount.

3. Engaging Expert

With their new $200,000, Perfect Bale is ready to engage the scientific/engineeringexpert necessary to complete the development of the edible tag.

They have decided to engage Dr. Ellen, a chemical engineer at Iowa State University, toassist in developing the edible tags and to test those tags to ensure that they are safe foranimal consumption.

Dr. Ellen believes in Perfect Bales technology and is willing to work for a reducedhourly rate in exchange for some sort of equity interest in Perfect Bale. Perfect Bale

desires to accept this proposal to make their cash last longer. Perfect Bale offers Dr. Ellen non-qualified stock options for 36,842 common shares at a

price of $2.00 per share, subject to certain vesting requirements and acceleration uponmerger or acquisition.

4. Series A - Plains Angels Round

Copyright 2012 Greater Des Moines Partnership


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It has been six months since Perfect Bale engaged Dr. Ellen, and it now has workingprototypes of all of its products and is ready to commercialize and scale production.

It has received a commitment from one major ag implement dealer in the Midwest to sellPerfect Bales products, and has already made some initial sales to some early adopters.

As part of the commercialization, Aaron, Bill, and Chris will all start working for PerfectBale full time.

To scale, Perfect Bale believes it will need $1,750,000. This will cover officer salaries,marketing and travel expenses, production expenses, and other working capital. It isexpected to provide 12 months of initial runway.

Perfect Bale is offering 175,000 shares of common stock for $1,750,000 ($10 per share). Between Plains Angels and other angel investors, Perfect Bale is able to fully subscribe

the Plains Angel round.

5. Series B Down Round

In the twelve (12) months following the Plains Angels round, Perfect Bale was able tocommercialize the product. However, a number of circumstances slowed the companysgrowth and caused the initial marketing to be substantially more expensive than expected.These circumstances included the following:

o Due to drought, the cost of the inputs for the edible tags increased by 50%, greatlydecreasing Perfect Bales margins on the consumable products that it was relyingon to finance continued growth.

o Adoption of Perfect Bales products has been slower than hoped. In addition,desired support from trade associations has been slow to materialize.

o Due to high input costs, livestock herds had been significantly reduced in size,which reduced the total demand for hay.

Perfect Bale continues to believe in the value of its products. However, it will needadditional capital to help it overcome the problems described above and provide morerunway to build up sales to a self-supporting level.

With the decreased margins caused by the higher input costs, the value of the companylooks significantly lower than during the Plains Angels round.

To continue to operate, Perfect Bale decides to raise an additional $1,000,000 at $5.00per common share (200,000 common shares), which is fully subscribed by the Series AInvestors.

6. Series C Round

Perfect Bale was able to find investors for the Series B round and was able to survive thedifficult economic conditions, and are now another twelve (12) months down the road.The company's operations now provide positive cash flow.

Up until now, Perfect Bale has focused all of its sales and marketing efforts in the NorthAmerican market. With the confidence from its North American success, it hasresearched expanding into international markets, particular South America where there issignificant growth in the agriculture and livestock industries.

To effectively expand into South America, Perfect Bale believes it will require$5,000,000 in capital. This will finance building a distribution network, a South


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American production facility, legal and financial services, regulatory assistance, andsimilar activities.

Perfect Bale has negotiated with Ag Venture Fund ("AVF"), a venture capital firm thatfocuses on agricultural products and technology, to finance the expansion.

AVF desires to receive preferred shares instead of common shares. AVF is demandingthe following rights:

o The preferred shares would have receive a cumulative, non-compoundingdividend of 10%.

o Perfect Bale will provide AVF with warrant coverage equal to 30% of the SeriesC investment.

o The preferred shares will have a liquidation preference (including any sharesreceived from the exercise of any warrants).

o AVF will have piggyback (as opposed to demand) registration rights for thepreferred shares.

o AVF will have drag along rights. Perfect Bale decided to negotiate for tag alongrights for the common shareholders in response.

7. Sale of the Company

After receiving the Series C capital, Perfect Bale successfully launched its product inSouth America. Thereafter, it started selling into Australia, Europe, and other promisingmarkets.

For two years, Perfect Bale was very successful and had extremely rapid growth.However, in the third year sales growth started to slow as high growth potential marketsbecame more limited. In year three, the EBITDA for Perfect Bale is approximately $5Mper year.

At the end of year three, a larger agricultural conglomerate offers to purchase PerfectBale for $17.5M, or 3.5x EBITDA. After significant reflection, the board of directorsdecided to recommend approval of the sale to the shareholders, and the shareholdersthereafter approved the sale.


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Cap Table Due Diligence

1. Do the numbers add up?

- Are all of the shares that the company says are outstanding documented on the

Cap Table?- Does the total investment amounts match what is expected based on the number

of shares issued?

- Do the percentages of total ownership match the entries in the Cap Table?

2. Does the company have any outstanding options and are they documented on the Cap

Table?

3. Does the companys governing documents authorize all of the classes of stock which

are listed on the Cap Table?

4. Has the company issued more shares of stock than are authorized by the companysgoverning documents?

5. Does the companys form of organization permit the classes of stock that are listed onthe companys Cap Table? Applicable to S-corps and certain professional companies.

6. Does the company have minutes which document the approval and issuance of all ofthe shares and options which are listed on the Cap Table?

7. Does the company have copies of the share certificates for each of the shares listed onthe Cap Table?

8. Does the companys share register match the information included on the Cap Table?

9. Does the language of the share certificates match the rights of the different classes of

stock as documented on the Capt Table?

10. Are there any shareholder agreements which impact the Cap Table?

11. Are there any anti-dilutive agreements applicable to any of the classes of shares listedon the Cap Table?

12. Were any shares issued in violation of any shareholder agreements or anti-dilutiveagreements?

13. Does the company have documentation regarding the securities offering exemptions

that were relied on for each round of financing?

Copyright 2012 Greater Des Moines Partnership


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Cap Table Training Combined Handouts (1)

Documents