§ 02 / Financial logic

The mechanics of the round.

Headline valuation is the loudest number on a term sheet — and rarely the most important. These modules cover what actually decides ownership, control, and outcome.

F.01

Pre- vs Post-Money Valuation

The difference between pre- and post-money determines exactly how much you sell — and to whom.

  • 01Pre-money valuation is what investors agree your company is worth before new capital arrives.
  • 02Post-money equals pre-money plus the round size; the investor's ownership equals their check divided by post-money.
  • 03Always confirm whether a quoted valuation is pre- or post-money before signing a term sheet.
Ownership = Investment ÷ (Pre-money + Investment)
F.02

The SAFE Instrument

Caps, discounts, and MFN clauses shape the dilution you'll feel at the next priced round.

  • 01A SAFE converts to equity at the next priced round, usually at the lower of the cap price or the round price (less any discount).
  • 02Post-money SAFEs (YC, 2018+) fix investor ownership before subsequent SAFEs dilute it — founders absorb the dilution.
  • 03Stack SAFEs carefully: each cap creates a separate conversion price and can quietly compound founder dilution.
Cap price = Cap ÷ Fully diluted shares (pre-conversion)
F.03

Dilution Across Rounds

Model 3–4 rounds forward to understand the real cost of every term you negotiate today.

  • 01Each priced round dilutes existing holders by RoundSize ÷ Post-money.
  • 02Option pool top-ups before the round dilute only the founders, not the new investors.
  • 03Founders who raise Pre-seed → Series B with discipline typically retain 35–55% of the company.
Founder % after = Founder % before × (1 − new round %)
F.04

Term Sheet Essentials

Liquidation preferences, anti-dilution, and board control matter more than headline valuation.

  • 011× non-participating preferred is the modern standard; participating preferred is founder-hostile.
  • 02Broad-based weighted-average anti-dilution is reasonable; full-ratchet is not.
  • 03Board composition (founders / investors / independent) decides who controls the company in a downside scenario.
F.05

Cap Table Hygiene

A clean cap table closes rounds faster and protects you in diligence.

  • 01Maintain a single source of truth (Carta, Pulley, or a maintained spreadsheet).
  • 02Track fully-diluted shares including options, warrants, and unconverted SAFEs.
  • 03Refresh the option pool at each round; aim for 10–15% available post-close.
F.06

Equity vs Venture Debt

Venture debt extends runway without selling more equity — when your metrics earn it.

  • 01Best deployed alongside or shortly after a priced equity round, when ARR and burn are predictable.
  • 02Expect 25–40% of last equity raise, 36–48 month amortization, warrants of 0.5–2%.
  • 03Avoid using debt to fund unproven experiments — covenants bite hardest when growth slows.