Let's face it: "Equity" is a big word. because of the variety of types of assets that exist, "equity" can have somewhat different meanings when referring to different kinds of assets: shares, common stock, preferred stock, etc. From stock options to warrants and liquidation preference, it's not always easy to have a clear vision of who owns what in a startup. Equity Management in the US used to be done manually by lawyers but it's less and less the case. Why it's changing? What is really at stake? How equity can be easier to understand by founders, employees... and those who need it? For this special event, we're thrilled to welcome Henry Ward, CEO of eShares. Henry will share his experience on how equity Management is changing in the US and how this will impact Europe. eShares is a fast-growing online platform that allows companies—from seed stage to pre-IPO—to manage equity electronically with the participation of their shareholders, employees, auditors, and legal counsel. They are working with more than 1,500 companies and add more than 200 companies each month. Last year, they raised $17 million in Series B funding at a post-money valuation of $77 million.

1. HOW EQUITY MANAGEMENT IS CHANGING
BY HENRY WARD CEO AT ESHARES
#TFSPECIAL

2. TheFamily
code: lamifasisi
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3. DISAGREE ON TWITTER!
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4. #TFSPECIAL
HOW EQUITY MANAGEMENT IS CHANGING
HENRY WARD
CEO AT ESHARES
@ESHARES

5. A Simple Financing
Cap Table
Bob 50% ?
Mary 50% ?
Option Pool 0%
New Investors
Dave ? $1,000,000
Financing Terms
Pre MoneyValuation $4,000,000
Post Money Option Pool 0%
What will
this be?
New Cap Table
Bob 40% $2,000,000
Mary 40% $2,000,000
Option Pool 0% $0
Dave 20% $1,000,000
100% $5,000,000
Of course!

6. Two Types of Financings
Equity FinancingConvertible Note
“Priced Round”“Debt Round”

7. Equity Financing Terms
Pre MoneyValuation
Value of the company prior to the investment of “new money”
Post MoneyValuation
Value of the company after the investment is made
Option Pool
Number of shares reserved for employee stock options

8. Add an Option Pool...
Cap Table
Bob 50% ?
Mary 50% ?
Option Pool 0%
New Investors
Dave ? $1,000,000
Financing Terms
Pre MoneyValuation $4,000,000
Post Money Option Pool 20%
What will
this be? Makes sense!
New Cap Table
Bob 30% $1,500,000
Mary 30% $1,500,000
Option Pool 20% $1,000,000
Dave 20% $1,000,000
100% $5,000,000

9. Have an Option Pool?
Cap Table
Bob 40% ?
Mary 40% ?
Option Pool 20%
New Investors
Dave ? $1,000,000
Financing Terms
Pre MoneyValuation $4,000,000
Post Money Option Pool ?
What will
this be?
Got it.
Everything gets
diluted.
New Cap Table
Bob 32% $1,600,000
Mary 32% $1,600,000
Option Pool 16% $800,000
Dave 20% $1,000,000
100% $5,000,000

10. More Options Please
Cap Table
Bob 40% ?
Mary 40% ?
Option Pool 20%
New Investors
Dave ? $1,000,000
Financing Terms
Pre MoneyValuation $4,000,000
Post Money Option Pool 20%
What will
this be?
Sure. Post Money
is Fixed.
New Cap Table
Bob 30% $1,500,000
Mary 30% $1,500,000
Option Pool 20% $1,000,000
Dave 20% $1,000,000
100% $5,000,000

11. More Investors Please
Cap Table
Bob 40% ?
Mary 40% ?
Option Pool 20%
New Investors
Dave ? $1,000,000
Ann ? $1,000,000
Financing Terms
Pre MoneyValuation $4,000,000
Post Money Option Pool ?
What will
this be?
Rounding errors
aside, OK.
New Cap Table
Bob 27% $1,600,000
Mary 27% $1,600,000
Option Pool 13% $800,000
Dave 17% $1,000,000
Ann 17% $1,000,000
100% $6,000,000

12. Make It Hard Now...
Cap Table
Bob 40% ?
Mary 40% ?
Option Pool 20%
New Investors
Dave 20% ?
Ann ? $500,000
Jeff 5% (max to $400K)
Financing Terms
Pre MoneyValuation $4,000,000
Post Money Option Pool 15%
And what if I negotiate the
Pre MoneyValuation?
What will
these be?

13. Let’s Go Back Here
Cap Table
Bob 50% ?
Mary 50% ?
Option Pool 0%
New Investors
Dave ? $1,000,000
Financing Terms
Pre MoneyValuation $4,000,000
Post Money Option Pool 0%
What will
this be?
New Cap Table
Bob 40% $2,000,000
Mary 40% $2,000,000
Option Pool 0% $0
Dave 20% $1,000,000
100% $5,000,000

14. Let’s Sell the Company
Cap Table
Bob 40% -
Mary 40% -
Option Pool 0% -
Dave 20% $1,000,000
100% -
Sales Price = $10M!!!
Payout
Bob 40% $4,000,000
Mary 40% $4,000,000
Option Pool 0% $0
Dave 20% $2,000,000
100% $10,000,000
Easy!

15. Let’s Sell the Company
Cap Table
Bob 40% -
Mary 40% -
Option Pool 0% -
Dave 20% $1,000,000
100% -
Sales Price = $500K :(
Payout
Bob 40% $0
Mary 40% $0
Option Pool 0% $0
Dave 20% $500,000
100% $500,000
Liquidation Preference!

16. A Fundamental Law
Assets = Liabilities + Equity
Company Assets - Total Liabilities = Shareholder Equity
(think of it this way....)
$100 $80 $20

17. A Fundamental Rule
In case of liquidation, Debts (i.e. Liabilities) are always
payed before Shareholder Equity

18. Capital Structure
Assets
Liabilities
Equity
$100
$20
$80

19. Capital Structure
Assets
Liabilities
Equity
$80
$0 (shareholders lose everything)
$80

20. Capital Structure
Assets Liabilities
$60 $60 (debt holders lose $20)

21. Payout Graph
$ Sales Price
$ Payout
Debt
Equity
$80
$80

22. Let’s Sell the Company
Sales Price = $10M
Payout
Bob 40% $4,000,000
Mary 40% $4,000,000
Option Pool 0% $0
Dave 20% $2,000,000
100% $10,000,000
Sales Price = $500K
Payout
Bob 40% $0
Mary 40% $0
Option Pool 0% $0
Dave 20% $500,000
100% $500,000
Preferred Shares behave like Debt!Preferred Shares behave like Equity!

23. Capital Payout Graph
$ Sales Price
$ Payout
$4M
$5M$1M
$1M
Preferred (Dave)
Common (Bob & Mary)

24. “Dead Zone” Protection
Accruing Dividends
Dividends (i.e. 6%) that accrue
Participating (vs Non-Participating)
Participating Preferred takes pro-rata portion of any gain after
receiving cost basis
Investment Multipliers
Increases the protected return to the investor e.g. 2x returns
twice the original investment before common is paid

25. Accruing Dividends
$ Sales Price
$ Payout
$4M
$5M$1M
$1M
Preferred (Dave)
Common (Bob & Mary)
$1M + 6% * t
Grows over time

26. Participating Preferred
$ Sales Price
$ Payout
$4M
$5M$1M
$1M
Preferred (Dave)
Common (Bob & Mary)

27. Preferred Multiplier
$ Sales Price
$ Payout
$4M
$5M$1M
$1M
Preferred (Dave)
Common (Bob & Mary)
$2M

28. A Few More Terms
Anti Dilution
Protects investor ownership percentage in the case of a down
round.
Warrants
Just like Options (right to buy at a strike price) except they
are add to the fully diluted (instead of from option pool)
Partially Participating Liquidation Preference
Behaves like Participating Preferred up to a certain threshold
which is usually expressed as a multiplier of the investment

29. What is eShares?

30. We are an SEC registered Transfer Agent
The first one focused on private companies.

31. We issue electronic shares, options, debt, and derivatives
And track ownership, restrictions, and shareholder information.

32. We automate their approval and compliance
Seller Buyer
Including new issues, transfers, and settlement.

33. And track the shareholder registry
And the shareholders portfolios.
Cap Tables
Portfolios

34. Consolidating equity services for privately owned assets
Transfer Agents Brokerages
Private
Company
Services
Public
Company
Services
IPO
For companies and shareholders
Exchanges

35. Our website describes us best
And tells our story

36. Thanks!