Negotiating 
the deal
Valuation
Option pool
Liq Pref
board
social contract
Intrinsic:
- Saas: 4-5X revenues --> €6M
- Saas with growth --> €10-12M
- DCF: terminal value 5X revs = €35M, PV @25% = €17.5M
real world:
VC wants to own 20-25%
how much $$$ is reasonable ?

investment / ownership = post money
$2m / 25% = $8M post, $6M pre

$pre / #shares = price per share

S-I-M-P-L-E
?
Bottom Line:

Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation

(venturehacks' option shuffle)
Pre-money:  €6.6M
option pool in pre-money: 20%
price per share: $1

no option pool in pre-money
price per share: $1.5
What do you mean, "fully diluted" ?
apples and oranges
The option pool lowers your effective valuation
know what to measure: price per share
Title   Range (%)

CEO  5 – 10
COO  2 – 5
VP  1 – 2
Independent Board Member  1
Director  0.4 – 1.25
Lead Engineer  0.5 – 1
5+ years experience Engineer  0.33 – 0.66
Manager or Junior Engineer  0.2 – 0.
FAKE - ERPLY: round it up to 10%

VP Marketing 2%
VP Product 1.5%
VP Finance 1.5%
3 good sales guys 1.5%
1 Lead Engineer  0.5 
2 experienced Engineer  0.4
junior folks 1%
Think Liq Pref is unfair ?
company gets sold on day 2 for €6M
Investors get €1.5M on €2M invested
founder gets €1M
Liquidation Preferences determines how proceeds get distributed 
- investors get their money back first
- Participating preferred: everyone pro-rata thereafter
- simple preferred: investors get higher of pro-rata of $ invested
- multiple (participating) liquidation preferences, capped or not 
“Good boards don’t create good companies, but a bad board will kill a company every time.”

– Old Silicon Valley Saying
The form of government in a company is dictatorship. The board represents the owners of the company and selects the dictator (CEO). The board then works to ensure the dictator is optimally benevolent towards the owners. Naturally, bad dictators get beheaded…
VH
The board primarily sets strategy and approves budget
It decides on exit, capital raise, litigations, senior hires, management

Considerations when composing boards

- who owns what ?
- fast and efficient decision making
- good governance
- investor control vs. founder protection
- richness

My FAKE ERPLY recommendation
- founder nominated 
- CEO
- angel
- one VC (with investor controls)
- one independent
reverse vesting
- you're the only real asset 
- equity is your liquid and  valuable currency
- don't get arb'd: 
        good leaver provisions
        partial vesting
legal contract covers downside
avoid toxic risk

SECURE THE SOCIAL CONTRACT
Get through the process

embrace pitch decay

make your sponsor's life easy

Be an Israeli entrepreneur

the 8-hour drive test

retain mindshare
tHANK yOU

some content 
from VentureHacks
entrepreneur-centric
early stage finance
@fdestin
www.freddestin.com