Co-Founder Club Getting Your Startup Started Who Gets What & Why the Cap Table Is So Important

1. Co-Founder ClubGetting Your Startup StartedWho Gets What & Why the Cap Table Is So ImportantCarl ShowalterGeneral PartnerOpus Capital

2. Opus Capital Mission We are lead investors in early stage information technology companies founded by high integrity entrepreneurs. We leverage our decades of operating experience by actively assisting portfolio companies to build market leading enterprises. 2

3. 3 Opus Investment Strategy Early stage – seed and series A IT focus Wireless/Mobile Internet Enterprise Application Software Infrastructure Software Semiconductors Lead investor Over $1B in funds Fund V – raised 2006 – invested in 28 companies Fund VI – raised 2010 – first 3 investments in 1H 2011

4. General Partners 4

5. CONFIDENTIAL OPUS CAPITAL 2011. Not to be copied, distributed or referred to without the prior written consent of Opus Capital. 5 Cap Table Allocation Considerations Rule #1 - Involve a lawyer early Rule #2 - Carefully consider participants The “Founders” Other employees and future hires Investors Others Rule #3 - Think about initial and longer term structure

6. 6 Rule 1 – Involve a Lawyer Speak to a lawyer very early in the process Most will help you incorporate and discuss the cap table for very little cost. Do not verbally commit anything to anyone – a verbal conversation can be viewed by the law as a binding contract! Have you seen the Facebook movie? Real world experiences – verbal undocumented discussions happen all the time and usually only surface at the point of M&A or IPO. Exercise care in how you structure the cap table before you speak with investors. Get (and listen to) advice on vesting and acceleration.

7. 7 Rule 2 – Cap Table Participants Founders – basic questions Who is a founder? How many founders should you have? How many is too many, too few? How should the equity be split between founders? Does equal allocation work? If equal, how long will equality last, should it?

8. 8 Rule 2 – Cap Table Participants Founders – advanced questions Alignment/understanding of motivations What are each of you hoping to build? Why are you starting this company? What “culture” are you hoping to instantiate? 3 – 4 points at most – WRITE THEM DOWN! How are you expecting this to help/accelerate your career? Is title or company success the main driver? What is your “magic number”? Believe it or not – one of you does not have to be the long-term CEO. Approaching early stage VCs without a CEO is ok.

9. 9 Rule 2 – Cap Table Participants Other employees How do you want to treat early employees who are not founders? What key hires do you have in the near term? What key hires do you have before you raise a second round? What is the philosophy of pay vs. equity? The above drives how much of an option pool you need.

10. 10 Rule 2 – Cap Table Participants Others – basic questions Cash is king, but be careful of over-populating your cap table Contractors Advisors Business partners Other third parties Save your equity for the founders, employees and investors Make sure you advisors are adding value – keep them on a short lease Once again - avoid making verbal commitments – put everything in writing!

11. 11 Rule 2 – Cap Table Participants Investors How much money do you need to get to a milestone where you can raise more money at a much higher valuation? Series A rounds are usually the most dilutive to common stockholders. Who will you take money from first? Friends and family? Angels, Super Angels or Mega Angels? VCs? How do you best structure the investor part of the cap table? Friends and family – be careful of setting precedent and valuation. Angels – get a manageable number who can help you. VCs – they will have their own model for structure in many cases.

12. 12 Rule 3 – Structure Considerations Typical VC-led series A cap table breakdown Founders – ~20-40% Investors (including angels) – ~40-60% Other Employees– ~20% Pool to last until next round of financing Certainly there are outlying examples, but in the case with 2 VCs, each will want at least 20% in companies that will require significant capital.

13. Cap Table Example – Series A 13 Hypothetical IT example with Angels with bridge with 15% discount and 2 VCs $5M Pre raising $5M in Series A Capital - $1/share 20% option pool for existing and new employees. Founders own 30% of the company post-money

14. Cap Table Example – Series B 14 Hypothetical IT example with Series B led by new VC with existing investors pro-rata $46M Pre raising $10M in Series B Capital - $4/share 1.5M shares added to option pool for existing and new employees (generous) Founders own 21% of the company post-money (30% dilution)

15. 15 Summary Get a lawyer early Honest conversation among founders is critical Develop a fundraising strategy Where will you start, where do you want to end up at a liquidity event?

16. Thank You!carl@opuscapital.com