Who owns what?

In this guest blog, Carine Schneider, President of Astrella, providers of leading cap table management software, gives a 101 on understanding your cap table, and some of the key risks to avoid when it comes to share ownership.

WHAT YOU NEED TO KNOW ABOUT PRIVATE COMPANY OWNERSHIP 

So, you’ve got a game-changing idea that’s going to disrupt your industry and you are ready to raise funding and change the world. Congratulations! You’re ready to move fast and break things, to turn it up to eleven, to do what most won’t, to live like most can’t. You’re ready to build your very own rocket ship

And we love that about you. But take a breath. 

The startup landscape is a wild world. Sobering statistics are often tossed around about the single-digit percent of startups that make it, with relatively few companies receiving venture capital funding. 

But there are steps you can take from the start to significantly increase your chances of success, from negotiating the initial agreement that lays out the foundations of your partnership with your co-founders to your five-year road map. Decisions you make now will determine how sustainably you grow, the quality of investors and investment you attract, and the level of control you maintain. 

Let’s build that rocket ship on rock-solid foundations. 

WHO OWNS WHAT? 

“A lot of entrepreneurs don’t really 

understand how the pie is divided,” 

Carine Schneider, 

President of AST Private Company Solutions. 

Too many founders think it’s just slicing up the company and distributing (or selling) the pieces. They think ownership is locked in with a one-time decision that lays out clear-cut, unchanging percentages (maybe they’ve watched too much Dragon’s Den…). They may think they own half the company and will always have the final say in decisions that affect it. 

All too many learn the hard way that things change. 

Even in the simplest scenario, where you and a co-founder are splitting company ownership 50/50, you’ll need to put aside 10 to 15 percent for the employee equity compensation plan. So, the slices have gotten more complicated before you’ve even thought about accepting investments from multiple rounds of investors. 

What’s more, regardless of share types and percentages, your board will make important decisions about your company’s finances, strategy, and even ownership (more on building your board in a future post!). 

Equity is all the same… OR IS IT? 

“Shares” sounds simple enough. 

Except that the shares you and your employees hold in your company aren’t necessarily the same as the shares your investors will own. It’s important to understand the variables among different shares and share classes; the powers and responsibilities that come with them can vary significantly. 

“Say you and I each own 100 shares of a private company,” Schneider says. “We can’t really compare that value until we understand when we each bought the shares, what kind they were, and the rights and privileges that came with those shares.” 

Although this can get far more complicated, the first key distinction to understand is between common and preferred shares. Broadly, common shares – the kind you issue in your own company – come with voting rights and low or no dividends, while the preferred shares, which are what you may typically sell in priced rounds, usually do not have voting rights and pay higher dividends. In a private company, there is a lot of flexibility on the rights and privileges that can be assigned to different shares. 

Experienced investors will negotiate preference items that affect how the shares are handled in the event of different outcomes, including at exit, which could be an acquisition or stock-market flotation, or maybe a liquidation. 

Think of company ownership as a line of shareholders. You and your co-founder and your early employees were there first, so you will always be at the front of the queue, right? 

Wrong. 

The thing is, the people who set up chairs and camped out from the start (holders of commonshares) can get trampled by the investors (holders of preferred shares / share-classes) who showed up much later with more money. 

Savvy early backers will try to negotiate anti-dilution clauses to keep their percentage from shrinking, even as later investors line up preference items to ensure their full amount is returned to them. At your company’s exit, you may be surprised to find yourself at the back of the line. 

In short, ownership can be complex and not intuitive. 

You need to make sure you always understand who has what type of shares, what the terms are, and what the implications are for your ownership. 

You will be well served by lining up expert advisors who
can help you make sure you are making the best decisions for your company from the earliest steps. It’s also important to have access to a system that provides you with both exit as well as “next-round” modeling tools. Real talk: the incredible disappearing stake. There 

OK, so seriously… WHO OWNS WHAT? 

With all the complexity involved in ownership, how do you keep track of everyone’s place? Enter the capitalisation table. 

The “cap table” is a tool that tracks company ownership data. In short, it determines that line of stakeholders by tracking their equity stakes over time. A good cap table means
no surprises. 

A common mistake new founders make is waiting too long to create a cap table. Nearly as common—and just as harmful—is creating a poor (or inaccurate) one. 

While a simple spreadsheet may give a snapshot of a moment in time in ownership, it can be dangerously inadequate. Spreadsheet files can get lost, or a simple typo can change your billion to a million. It’s important to use a robust tool. to store, track, and model ownership data that tracks the changes to ownership over time. 

The cap table is one of the first things any potential investor will request when considering an investment. In addition to showing constant, real-time ownership data, it will model the changes to your ownership under different potential investment scenarios. “A smart investor is always going to want to look at the cap table, and a smart investor is not going to want to look at a cap table that comes from a spreadsheet,” Schneider says. 

Companies raising capital through Angel Investment Network benefit from complimentary access to Astrella for up to 15 stakeholders, with the following code used during registration: 

LAURENCE15


For more information about Astrella please click here.

About Carine Schneider

Carine Schneider, FGE, is the President of AST Private Company Solutions. She was honored in 2019 with the ProShare Award for Services to Employee Share Ownership, in 2017 as one of the 100 Influential Women in Silicon Valley (Silicon Valley Business Journal) and one of “17 Women to Watch”​ in 2017 by Brown Brothers Harriman.

Carine was invited to become a Fellow of Global Equity (FGE) in 2019. An experienced and well-connected leader in private market & global compensation industry. Carine was formerly the President, NASDAQ Private Market Equity Solutions

For any equity related queries or cap table assistance contact Laurence@Astrella.com.

BehindTheRaise with Pantee

Tell us about what got you into startups:

A few years ago when myself (Katie) and my sister (Amanda) learned about the sheer amount of waste produced by the fashion industry, we knew we had to do something about it. So, we came up with the idea to launch Pantee – the world’s first underwear brand made from deadstock t-shirts. 

Raised remotely during the pandemic, we began bringing Pantee to life in late 2019 and after a year of research and product development we launched pre-orders on the crowdfunding platform, Kickstarter, in November 2020. 

Katie and Amanda McCourt, Co-founders, Pantee

Why did you decide to raise investment?

From day one, we have been on a mission to disrupt the fashion industry and build a brand that pushes the boundaries of what can be achieved with deadstock fabrics and by upcycling. We planned to raise the investment from the beginning, first with a crowdfunding round on Kickstarter and now with an SEIS raise with Angel Investors. We wanted to do this to give us the resources to further amplify our mission and set us up to create a greater impact in the future.

What is your top tip for anyone raising investment for the first time?

I think everyone would say this, but don’t be disheartened by the rejection. As first time founders, we found the process of raising very difficult and we rode extreme highs and lows from start to finish. You’ll hear so many no’s, but it isn’t necessarily a reflection on your business or your idea – you just might not have been speaking to the right person. 

What attracted investors to your company?

We were able to prove a strong amount of early traction that Pantee had received within the first few months since launching our D2C eCommerce store. 

Within a short time of launching, we had grown an engaged community of over 10,000+ women, were racking up 5* reviews on Trustpilot and had been featured by the likes of Vogue, Stylist Magazine, Drapers, The Observer and named a ‘Top Sustainable Underwear Brand’ by The Independent.

During the raise period, Pantee also received recognition from major global tech companies having been featured on Shopify’s ECommerce Masters Podcast and awarded Klarna’s Small Business Support Package.

This really helped us to prove to investors that the brand was not only resonating with early customers that loved the product, but that it was innovative and newsworthy – building their confidence in our brand awareness capabilities. 

My biggest fundraising mistake was…

Don’t underestimate how long you need and celebrate every win, no matter how small. 

Raising investment can be a long process.  It’s never too early to start building relationships with investors to instill confidence in both you and your idea. Get them excited about your business and take them on the journey with you, the more involved you get people early on the more likely they will invest, in my opinion. 

It’s really easy to get bogged down by the no’s which you will get a lot of, in most cases more than the yes’. Don’t let it slow you down – we were given some great advice by a fellow startup founder who advised us to ‘learn to enjoy the rejection’ – once you stop taking it personally it allows you to learn from it – in a productive sense! 

Why did you choose to use the Angel Investment Network?

We signed up to the Angel Investment Network halfway through our raise to expand our search away from our own network and connect with new investors from different backgrounds. It was a great decision as it led us to connecting with one of our biggest investors that was instrumental to helping us close the round.

What has the funding enabled?

We have just closed our SEIS raise and have already begun putting in place our strategies to further amplify brand awareness, build a core team, expand upon our lean product range and certify our sustainability efforts with accreditations.

Keen to hear more?

If you would like to see what other companies are up to on Angel Investment Network, or are interested in raising funding yourself, you can find your local network here.

Tech leads but stunning rise in interest for sustainable businesses, finds Angel Investment Network report

Angel Investment Network has revealed its latest ‘State of the Angel Investment Nation’ findings. It is based on the data of our UK registered businesses looking for funding and the keyword searches of investors.

Investor keyword searches
‘Technology’ was the top search term used in 2019, based on investor keyword searches. This was followed by ‘property’ with ‘mobile’ the third most popular. ‘Robotics’ climbed six places year on year to now be the fourth most requested search term. Meanwhile ‘electronics’ is up by nine places on the list to number six.

With climate change centre stage in Davos last week, there also has been a stunning rise in interest for sustainable businesses. Searches for ‘Renewables’ have rocketed by 34 places to be the 14th most searched for term. Meanwhile ‘greentech’, unheard of even a couple of years ago, is now the 19th most popular keyword, up from 47th last year. Environmental leapt 56 places up the rankings to be the 25th most searched for term.

Pitch ideas
For entrepreneurs like Jimmy John Shark, property is the most popular sector for pitch ideas. Entertainment and leisure is the second, followed by technology. Overall there were 10% more pitches over the past 12 months from startups looking to attract investors.

According to AIN co-founder Mike Lebus: “Startups are the lifeblood of the UK economy and despite a turbulent year politically, there has been no slowdown in activity. Investor interest remains focused on technology and the cutting edge applications that are possible through it, including mobile and robotics. However property, one of mankind’s oldest profit generators, continues to drive the interest of investors and is now our top sector for pitches.”

He continued: “The growth in interest in impact related terms is remarkable and we are witnessing a seachange in investor attitudes as it has so quickly shot to the top of the news and business agenda. It is the reason we launched our spin off SeedTribe to help support entrepreneurs who put sustainability at the heart of their business model.” 

The report also reveals some discrepancy between startup ideas and investor interest. While fashion and beauty remains the fourth most popular category for pitch ideas, it is just 17th on the list for investors. ‘Inventions’ as a search term fell by seven places from seventh to fifteenth most searched term. Meanwhile ‘Gadgets’ also fell by 15 places to number 32 as investors instead look for more tech and software based ideas.

Entrepreneurial hotspots
AIN has also revealed the UK’s top entrepreneurial hot spots. London remains responsible for 37% of all pitch ideas, although its market share was slightly down. The South East is second in the list with the North West number three, up 10% year on year. There has also been impressive growth in other parts of the country. There was 25% growth in pitch ideas in the West Midlands, with East Anglia up 26%.

The Top 10 Sectors for Pitches:

  • Property
  • Entertainment & leisure
  • Technology
  • Fashion & Beauty
  • Food & Beverage
  • Software
  • Hospitality, Restaurants & Bars
  • Retail
  • Business Services
  • Education & Training

The Top Keywords for Investors:

  • Technology
  • Property
  • Mobile
  • Robotics
  • Software
  • Electronics
  • Computers
  • Products
  • Residential property
  • Finance

The entrepreneur hotspot list is as follows (based on number of pitches from each region):

  1. London
  2. South East
  3. North West
  4. South West
  5. West Midlands
  6. East Midlands
  7. Scotland
  8. East Anglia
  9. Yorkshire and Humber
  10. North East
  11. Wales
  12. Northern Ireland



SeedTribe relaunches as ‘UK impact hub’ – powering profit-with-purpose driven businesses

Ethical investment platform SeedTribe has relaunched as a new UK-focused impact hub. The platform connects startups with individuals, corporates and governments interested in helping profit-with-purpose businesses. SeedTribe’s new remit includes mentoring, networking and recruitment, as well as investment.

SeedTribe uses the UN Sustainable Development Goals (“SDGs”)  as its impact framework with all businesses on the platform at Stage 1, raising up to £1M and driving revenue. Businesses that appear on the platform are heavily vetted so only the most inspiring are selected. Businesses are featured free of charge, but have the option to buy “add-ons”. These include helping with their fundraise, advertising a job to the network or showcasing an event. 

New content

New content includes spotlight interviews with founders, advice and guidance for startups who need support. There are also events, opportunities and a free match-up service enabling individuals to connect with businesses. Following extensive research and discussions with the network SeedTribe has identified five key areas of focus. These are:

1.     Mentors/Advisors
2.     Corporates giving financial or in-kind support in line with their values and fields of expertise
3.     Recruitment opportunities
4.     Interesting events they can attend
5.     Investment or other types of funding

Businesses winning investment and support

Businesses on the SeedTribe platform winning investment and support include: Teysha Technologies, a natural polycarbonate platform creating fully biodegradable substitutes for plastics and PinPoint who use data science to detect the early signs of cancer.

The site is powered by Angel Investment Network – the world’s largest online angel investment platform, with a global network of more than 1 million entrepreneurs and 200,000 investors.

Olivia Sibony is the CEO of SeedTribe and she was recently named one of the UK’s Top 10 Women Entrepreneurs for her work on SeedTribe.

She said: “Our entire ethos is using business as a force for good, meaning profit and purpose need to be interlinked. Over the past 18 months I have been approached by so many people who believe in our mission and want to help in ways beyond simply funding.” 

She continued: “Our community is dedicated to finding solutions to the world’s most intractable problems, helping impact-driven entrepreneurs  meet the people and institutions who can teach, support and fund their ventures. We believe in the power of collaboration and together we can empower business to be used as a force for good and transform our world.

Olivia is urging anyone keen to help SeedTribe’s mission to reach out. Please visit seedtribe.com for more information.

Angel Investment Network celebrates 15th anniversary

From a vision of opening up the closed world of angel investment to an expanding global network of a million users

AIN London team

From a proposal for a rabbit mashing factory in Russia to successfully funding What3Words, Angel Investment Network (AIN) co-founders Mike Lebus and James Badgett have seen it all. It has now been 15 years since our co-founders and childhood friends formed AIN, now the world’s largest online angel network. What started in the early days of the internet as two friends having a vision of an interconnected network of angel investors and startups has led to a platform now spanning 90 countries and more than a million users. Meanwhile the team is now 25 strong with team members in the UK, USA, Mexico, Spain and Nepal.

Our co-founders in earlier times…

Living and breathing the startup world since the early noughties, the team has successfully raised funds for standout companies like What3Words, Novastone and Rosa’s Thai. In the last few years the company has been developing at a breakneck pace with the launch of two spin-off brands, SeedTribe, a community for impact-focused businesses, and BrickTribe, which connects investors and lenders with property developers with proven track records. 

In the last year alone, AIN has received over 100,000 pitches from entrepreneurs across the globe, with the figure doubling over the last two years. Alongside existing markets there has been a rapid growth of startups coming from emerging markets. Meanwhile investors registering on the site have surged nearly 40% year on year, now standing at more than 200,000 registered business angels. 

Alongside the online platform, AIN also runs a successful broking division, which has seen exceptional growth in the past 12 months. AIN has been involved in several significant raises in 2019, including eco-friendly baby product business Kit & Kin, fully customisable bio-polymer plastic company Teysha, and Pin Point, a data science offering early cancer detection.

Our co-founders James Badgett and Mike Lebus today

Speaking about the anniversary James Badgett said:
“When we first set up, no one looked for investment online. Most investment came through personal connections, which not everyone has access to. We saw that good ideas weren’t getting the funding they deserved, because entrepreneurs’ access to angels outside their immediate circles was severely restricted. We imagined a platform which gave all entrepreneurs access to a national and international network of investors; and, of course, the only way to do that was online. It is remarkable to see how it has grown and we are proud of AIN’s place at the epicentre of the startup scene in the UK and now spanning the globe.”


Mike Lebus said:
“When we set up AIN, angel groups tended to be focused on a regional basis. Applying to them, following up, getting feedback, arranging meetings, etc was fairly laborious. We had the idea of creating a portal to streamline the whole process for entrepreneurs and investors. I feel immensely proud to have helped brilliant companies like Sweatcoin and What3words on their journey to huge success. However, of course there are no guarantees of funding and the startup idea needs to capture the imagination of any potential investors. Over time you do get a sense of what will work and what will sadly remain a pipe dream. We launched the broking division to apply our team’s expertise of selecting high quality dealflow and to help our investors identify the best prospects.

With AIN now having a footprint in every continent (except Antarctica where unsurprisingly there doesn’t seem to be much demand), we can’t wait to see where we’ll be 15 years from now! Happy anniversary AIN.


 

A worldview on startup stats

Angel Investment Network connects startups and investors from all over the world. But what does the current global startup climate look like? We have drawn together some statistics to give a brief global overview. 

In terms of numbers, the USA has by far the most number of startups at 46,606.  The UK comes in third place, with 4,901, just a couple of thousand behind India.

However, despite the USA having the highest number of startups, it is Uganda which has the greatest number of entrepreneurs per adult population at 28.1%. Interestingly, 5 out of the 15 countries with the highest proportion of entrepreneurs are in Africa, and Southeast Asia and South America are represented by 4 countries each.

Moving on to unicorns, meaning private companies with a value of over $1 billion, China is in the lead with 149 unicorns, compared to 146 in the USA. These two countries are vastly ahead of any other, with the UK and India coming in a distant third with 13 unicorns each.

Whilst these statistics only scratch the surface of the global startup landscape, they show that it certainly is an exciting world out there! 
All statistics and infographics are from the article Startup Failure Rate and 80+ Other Startling Statistics About Startups.

Angel Investment Network has networks around the world. Wherever you are based, if you are looking for investment find your country’s network, register and then upload your pitch.