How this works

Everything here is arithmetic you could do on paper. The point of the tool is to do it consistently and show its working — not to be a black box you have to trust.

What a cap table is

A list of who owns how many shares. Percentages are derived, never stored: your share of a company is your shares divided by everybody's shares. That is why issuing new shares to somebody else reduces your percentage without touching your share count. Dilution is division.

Fully diluted

The honest denominator. It counts not only shares that exist, but shares that are promised: the option pool set aside for employees, whether or not anyone has been granted options yet. Convertibles are priced against this number, so where you draw the line matters.

Convertibles: money now, shares later

An early investor puts money in before anyone can sensibly value the company. Rather than argue about a valuation, both sides agree to settle it at the next priced round — and the investor gets a better price than the new investors, because they took the earlier risk. Two terms do that work:

• A discount. The investor pays some percentage less per share than the round. A 20% discount means paying 80% of the round price.
• A valuation cap. A ceiling on the valuation used to price their shares. If the round comes in above the cap, the investor is priced as though it came in at the cap.

When an instrument has both, they do not stack. Whichever gives the lower price — and so more shares — applies, and the other is ignored. The tool says which one won and why.

SLIP

Startup's Lead Investment Paper, published free by StartupLab and drafted with SANDS. It is the Norwegian answer to the SAFE, and it is worth being clear about one thing: a SLIP is not a loan. It has no interest, no maturity and no right of repayment. The investor pays up front and gets an irrevocable right to subscribe for shares later.

The agreement defines the share count exactly:

Allotted Shares = Investment Amount / (Share Price − Par Value)

That − Par Value is the Norwegian part, and it is not a rounding detail. Under aksjeloven a share can never be issued below its par value, so the conversion is done as a cash capital increase priced at exactly par: the money already paid is share premium, and the investor pays par again at exercise. Leave the term out and you understate the investor's shares by a little over a tenth of a percentage point in a typical case — every time.

A SLIP also has a trigger amount: the round has to raise at least that much before it counts as the kind of financing that converts it. Below that, the SLIP simply stays outstanding, and the tool says so rather than quietly converting it.

SAFE, pre-money and post-money

Y Combinator's instrument, in two generations that behave differently. The difference is what goes into the share count the cap is divided by.

• Post-money (2018 onwards). The count includes every convertible, including this one and all the others. The consequence is that the investor's percentage is fixed at the moment of signing: amount divided by cap, full stop. They are not diluted by the other SAFEs. They are diluted by the new money and by the option pool created with the round.
• Pre-money (2013). The count excludes all convertibles but includes the option pool increase created with the round. SAFEs therefore dilute each other, and nobody knows their final percentage until the round closes.

The option pool shuffle

This is the one that surprises founders. When investors ask for "a 10% option pool post-round", the new shares are created before their money arrives. So the pool comes out of the existing shareholders' side of the table, not out of the round. It looks like a detail in a term sheet and it is worth several percentage points.

Where the round price comes from

The pre-money valuation is divided by everything that exists before the new money — including the shares the convertibles just converted into, and the new option pool. That price is what the new investors pay. It is also what makes the arithmetic circular: the pool is defined as a share of the final total, the final total depends on how many shares the round buys, and that depends on the price. The tool settles it by repeating the calculation until the numbers stop moving.

What this tool does not do

• Liquidation preferences and exit waterfalls. Ownership percentages only.
• Several rounds over time. One round, modelled properly, rather than a history.
• Legal or tax advice. It is arithmetic against published standard agreements. Before you sign anything, ask a lawyer.