Terms like “warrants, waterfalls and preferences” can be confusing and intimidating when attempting to understand a capitalization table (aka cap table); it is no wonder we are often asked for a simple way to understand them! This article will give a brief overview of why cap tables are important and introduce a simple model to use early in the due diligence process.
Imagine you are the manager of a seed stage investment fund. Your job is to make money for your investors through selecting and managing a portfolio of private investments. You work hard to find good deals, to negotiate the terms, and to shepherd each deal to exit. You do this ten, twenty, thirty or more times in your fund, often looking at dozens of deals before making one investment. So how do you get paid?
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