The Next Round Planner allows you to model different financing scenarios based on the potential parameters of your next investment round. Here, you can enter new stock classes and investors to visualize post-round ownership. The information entered on this screen can be used to generate a Pro Forma Cap Table as well. This post summarizes the optionality on this screen, and the implications of each selection.
Adding A New Stock Class
The first step is to add the new stock class. You can do so by clicking on the "Add Stock Class" button and adding information pertaining to that security. (To learn a bit about how the cost per share of the new class is calculated, you can read our blog post here!)
You can specify the amount you are hoping to raise and the pre-money valuation for the company. You will also want to provide the liquidation preference for this security, the liquidation multiplier, and the anti-dilution rights for that class. Further, you can override the default values if needed to match your financing’s unique situation (e.g., if your company is expanding the number of authorized shares in that class as part of the new round, if the authorized shares count in your account is not fully up-to-date).
The pie charts at the top of the page will update as you enter new information, to reflect the proposed post-financing capitalization of the company and resulting dilution impact to key stakeholders.
Note: After you create your new stock class, you can hover over the tooltip next to the Class Name to see the price per share and the total authorized number of shares you'll need for that round.
Learn More About Liquidation Preferences
Liquidation preferences determine how preferred stock investors get paid when your company exits. These preferences are generally the amount invested times the liquidation multiplier.
There are three different options when it comes to setting the liquidation preferences for a stock class in the Next Round Planner: full participating preferred, non participating preferred, and participating preferred with a cap.
Fully participating stock means that holders of the new preferred stock class get their liquidation preference (the payments that are paid to them before anything is available for distribution to common stockholders) and then they also get to share any of the proceeds that are left over, with the common stockholders.
Participating preferred with a cap means that holders of the new stock class are paid their liquidation preference preferentially (meaning before common stockholders are paid) and then they also get to share any of the proceeds that are left over, with the common stockholders, until an aggregate of X times the original investment is reached.
Non participating preferred stock means that the holders of the new stock class only get paid their preferential amounts or decide as a class to convert to common stock; they don’t get to take their preference and participate. Depending on the exit amount they will choose the option that gives the larger payout.
Learn More About Anti Dilution Optionality
Dilution refers to the decrease of a shareholder’s ownership percentage in a company due to an increase in the number of outstanding shares. Essentially, this increase in shares automatically reduces the shareholder's ownership in the company.
Anti-dilution provisions are negotiated by investors as a protection against dilution in a company should there be a "down round" (ie. the price of stock in a subsequent financing is lower than the price of the prior round's stock). There are three different options here: full ratchet, no price based anti-dilution, and weighted average anti-dilution.
Full ratchet anti-dilution means that the conversion price of existing preferred stock is reduced to the price at which the new shares are issued in the subsequent round. In other words, if the Series A investor purchased shares at $1 each and the Series B round prices each share at $0.5, the Series A shares will convert to $0.5 per share (or 2 common shares per each Series A share).
No price-based anti-dilution, means that the preferred investor will not be protected against a down round any more than the common stockholders. While many common stockholders think that this is the fairest option, many preferred investors will not agree to take the down round risk without any anti-dilution protection.
Weighted average anti-dilution is defined in the NVCA term sheet by a formula, described in our blog post here. There are three methodologies when calculating the weighted average anti-dilution formula, and they can be differentiated by how they calculate the number of shares of common stock deemed outstanding before new issuance.
Narrow-based includes only currently outstanding (not fully diluted) securities.
Broad-based includes the currently outstanding securities and granted options.
Broadest-based includes currently outstanding securities, granted options, and the ungranted pool.
Learn More About Stock Class Settings
Pro rata rights provide investors the option to participate proportionately in subsequent financings, so as to maintain their ownership in the company and not be diluted. If anti-dilution provisions protect investors against a potential down round, pro rata rights protect investors in the event that the company does well and continues to raise money.
While pro rata rights are a simple concept to comprehend, the different methods of calculating these rights can be more complex. Shoobx offers six ways to calculate these rights and, while the formula is the same, the number of shares included in the pro rata calculation (to determine ownership) differs.
Modifying The Liquidation Stack
Clicking on the "Modify Liquidation Stack" button will allow you to reorder the stock classes to identify the order in which each class of securities is paid out on an exit. You can read all about liquidation preferences in our blog post here.
Modifying the Employee Options Pool
In the Next Round Planner, the current number of shares in the employee option pool and the number of shares in the pool after the financing will be displayed side-by-side for comparison. In this view, the option pool will be sliced into the utilized pool, currently available pool, and any additional shares added due to the new financing.
Selecting the "Modify Employee Options Pool" button allows you to add new shares to the pool. You can provide a number of additional shares, a target total percentage (e.g. 10% of the company's fully diluted shares), or a target unallocated total percentage.
Debt & Alternatives
If your company has issued a SAFE or Bridge Note (also called a Convertible Note), you will see them listed in the "Debt & Alternatives" section of the Next Round Planner. Because convertible securities are designed to convert to preferred equity in a future financing, keeping track of these entries is important when examining the terms of a proposed deal.
Clicking on the paper and pen icon to the right of each financial instrument will allow you to specify whether the debt or alternative will convert during the next financing.
You can also use the 3-bar menu to add new or potential convertible instruments that aren't in Shoobx yet and choose whether to convert all or none of the instruments.
In this case, Sidney Safeholder will convert during the financing. The "principal" or "amount" value is the amount of money your investor invested via that financial instrument (in this case, a SAFE). You can specify how many shares that investor will receive in the conversion (by selecting "Custom"), or have Shoobx calculate this amount.
In the case of Bridge Note holders, the system can also calculate the number of shares each investor will receive in the conversion. Additionally, Shoobx provides options for the handling of interest that has accrued on these notes - whether such interest is to be paid out in cash or used to purchase additional shares in the upcoming financing.
Adding Investors & Unallocated Investment
After you have set up your new stock class and specified the terms of your financing, you can add investors to your planned round. At the bottom of this page you can select "Add Investor" to name the new investors, and/or indicate if existing investors will participate in this round (by clicking on the paper and pen icon).
Clicking "save" after making these edits will display the total unallocated investment and the post-money ownership percentages for existing investors.
When percentages are displayed on the page, they are calculated against the fully diluted common stock equivalent (CSE), which includes the entire option pool (granted and ungranted options).
This is an example of how your list of investors will change once you have added more information:
As you can see, the round has not yet been fully committed since there is still about $13M left to be allocated to investors.
Exporting The Pro Forma Cap Table
Once you have added all of the data to your Next Round Planner, you can download your Pro Forma Cap Table.
Note: If you're seeing more shadow classes of stock than you expected when you export your Pro Forma Cap Table, it could be because you have multiple SAFEs with slightly different terms, so the system will group them into classes that are exactly the same. If the Valuation Cap or Conversion Discount are different, Shoobx will create a different class for each variation. To check this, you can review the SAFEs in the data room to see if there are any discrepancies.
Shoobx reminds you that the Next Round Planner is merely a tool and is not a definitive representation of how the company’s ownership will change as a result of an equity financing. This tool does not replace and is not a substitute for legal advice, and you remain responsible for calculating and validating the outcomes associated with an equity financing.
Fidelity does not provide legal or tax advice.
Screenshots are for illustrative purposes only.
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