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This is an example of cap table modeling, used to assist with negotiations for new business. You can also use it in a standard real estate transaction, providing buyer’s their cap table as well. If you are familiar with real estate, you have no doubt encountered the many different ways that buyers, lenders and property sellers negotiate the purchase of a home or commercial property. It takes a skilled professional to understand the nuances of the language and to model the negotiation so all parties have an accurate idea of the cap table they can expect as part of the transaction.

The cap table modeling process begins by setting up a simple transaction, using the same financing as the original purchase. Then, you can model the impact that initial financing has on your startup capital. To do this, you simply add on a startup stakeholder. A startup stakeholder is someone who provides an additional stakeholder to your deal. Each time you make a successful transaction, they receive an additional stakeholder in return. You can even add in additional stakeholders as part of the negotiation if you are going through an angel investor.

One of the most important parts of cap table modeling is understanding how investors decide which deals they will fund. Real estate investors typically come from three different categories: angel investors, venture capitalists and others. In your startup you will want to identify the types of investors and learn what each one expects from your startup . When you have the information you need, you can easily adjust your pricing to appropriately match the needs of these investors.

When you are looking at adding on a startup stakeholder, also look at how you will handle the other stakeholders in your deal. For example, will you need additional stakeholder capital to hire a concierge in your office or provide specialized services? If you are dealing with an angel investor, the concierge will likely be included in your deal. As you continue to develop your cap table modeling, it will become apparent that this is one area where you may wish to outsource if you are not comfortable doing it on your own.

Many early-stage startups choose to add on a third party in the form of convertible notes. Convertible notes are essentially stock warrants for a given price per share. This is an excellent way to provide seed investors with some capital without having to give up too much of your own capital. In this section of cap table modeling, you will need to provide information on convertible notes for sale. This data will generally be provided by your consulting partner and will show the number of shares that will be issued, the company’s paid-in shares and other relevant metrics. The convertible note will also require information on the underwriters, if you are going to sell via an underwriter or on your own.

When working with an angel investor or private placement group, it is common to bring in the convertible notes as well. Often, these groups will have their own underwriters, who can make offers to the startup based on their personal investment thesis. It is not uncommon for startup founders to present their convertible notes to multiple groups in order to increase the value of the deal and create a greater offer to the sellers. You should model your deal based upon the options of the group.

As you complete your cap tables, you should consider adding an option to convert debt into equity. For instance, if a convertible debt note is sold at a price of $5 million, you could then raise funds through a private placement using this money. In many cases, this will be the preferred method of raising equity since the proceeds would be faster to obtain. In most cases, startup entrepreneurs will use the proceeds to pay down their debts or to launch additional ventures.

One of the key things to remember regarding the option pool is that there will need to be a significant number of investors participating in order for the deal to be a good fit for each participant. There are typically only a handful of angels willing to participate in such a transaction. The capital required could potentially be too great for any new company to support itself through angel investors alone. Therefore, it is essential that you add multiple funding sources to your potential offer. Additionally, when using a pro-forma or other early-stage startup funding sources, you should always provide a full disclosure to your angel investors regarding how the proceeds will be used and what they will receive in return for investing in your business.

Since the startup funding and working capital are the life blood of your business, it is important that you understand how and why they come into existence. As you finalize your Cap Table Model, it is important to know exactly what type of financing will be needed in order to execute the plan effectively. This is especially true when you are working with limited or non-traditional investors. You will need to make sure that they are comfortable with your personal growth plan, your business plan, the financial projections, and your plan for paying back the investment. If something went wrong while submitting the form, this could cause delays in getting onboard. By having a well-written sales and operating agreement along with a business plan, your investors will have something to fall back on.

Lastly, there is the issue of conversion of your convertible debt to equity. Most companies will not be comfortable with this because it does not remove the debt from their books. However, when applying Cap Table Modeling, you will be able to convert the convertible debt into equity without diluting your ownership. All investors will see is cash payments that are made automatically into your equity in the business on a regular basis. In addition to having cash and EBITDA added to their portfolio, most angel investors will also want to purchase warrants or preferred stock from you to give themselves more control over the business as well.