Decoding Equity And Convertible Notes - Startups 101

[@slidebean]

Last year, companies using our pitch decks raised $300M+ in venture capital. Here's how we can help you ►slidebean.com/?

[@lekantaiwo]

am trying to find a book you posted that has directories to american investors

[@lamaalzahrani984]

lekan taiwo is there any book like so? Please help

[@abdulsiyanbade2828]

unless I misunderstood this, I think there's a mistake at 12:00. I believe Gus should be 75,000 shares while Madigral would then be 21,500 shares. Great content though! Learned a lot here.

[@ahmedcine]

AbdulSiyanbade, I thought so, too. Excellent content, all the same.

[@optionstrader1939]

I’m a VC/IPO/M&A lawyer and was looking for some easy videos to explain startups, VC funding, etc. to my 18 year old daughter who is beginning business program at college. This video and this entire series is excellent. I also used to teach this stuff at MBA/Law school and explaining these things in a concise and easily understandable way is not all that easy. Great job to the Slidebean guys. And yes, as you mentioned in another video, what you have done with your company and technology is amazing even if you did not displace PowerPoint, etc. Congrats on your success and on eventually figuring who you really are and what your market is. Sadly, most tech entrepreneurs never make it that far.

[@slidebean]

Thanks! :)

[@techie2103]

@@slidebean hi can you explain about class a shares vs class b shares ?

[@tetroblanco3509]

How can I reach you if I have a possible Unicorn Startup

[@captainkip4624]

Man isn't that the truth. It took us 3 maybe 4 years to figure out who our customer was. This an excellent knowledge transfer throughout the series and highly recommend them. I also started playing with the app. There is a lot of potential here.

[@optionstrader1939]

@@tetroblanco3509 Hi. Sorry for delay in replying. I dont use KZbin all that much so I just saw this. Unfortunately I’m way too busy to help any more companies, but I appreciate you thinking of me.

[@fumbio2718]

This feels like a MBA class in 15 mins brilliant

[@cayahere]

Fumbi O funny thing is… I didn’t even study business.

[@ogorchukwuofili7319]

Tbh!

[@blanche1935]

Caya I am studying business, but honestly you don’t have to. Specially, when you have previous experiences of founding companies such as your case. In fact, your experiences in this channel are invaluable and it’s something that I have not acquired from any classes. So thanks a lot for the content! :)

[@ibukontraktor-taqwaproperty]

No it doesn't.

@@cayahere sir this channel is a damn gold mine of knowledge. I m not even 18 but damn this one and channels like economics explained makes me get into finance right away. Thanks a lot for such great videos

[@felix20111128]

Thanks for the video! Btw, the calculation at 12:00 seems to be wrong. Gus and Madrigal's data seem to be reverse. Let me know if I misunderstood it. Gus: 525K / 7M * 1M = 75,000 shares Madrigal: 1M / 50M * (1M + 75,000) = 21,500

[@chrisbaumann6850]

Great content Asma'a - apreciated! Just to correct 11:59: Walter/Jesse: 500.000;45.6% //Gus 75.000;6.84%//Madrigal 21.500;1.96%

[@Cornerstone4684]

Exactly! Great video and clear explanation but I repeated the maths and he need to correct so Gus: 6.8% & Madrigal: 2%

[@kishalayray7570]

You are the only one who is delivering these valuable contents on KZbin love and thanks from India

[@cayahere]

General Science 🙌🙌

[@tainadinapoli7993]

I so agree

[@soultanapapadopoulou2931]

I'm just stunned by the amount of information your video conveys, things that my four years Bachelor failed to explain in such a simplified and structured way.

[@quanlynique]

This is beyond wonderful. I actually understand this. I paid a lawyer to break this down and the lawyer didn't even know what they were looking at. This now helps me with making my decision on signing a contract or passing. Thank you so much.

[@AnuragBhatnagar01]

Great video - complex topic explained simply. One question - at 11m:59s, the numbers of shares to Gus & Madrigal (and their percentages) seem to have been switched, and the total is more than 100%. Would be nice if you reposted the corrected percentages and numbers of shares at that time stamp.

[@BelindaAng]

The most effective explanation I've come across! Have subscribed! Looking forward to your view on vesting.

[@slidebean]

Thanks for subscribing, knowing that our content is being valuable to you guys makes our day!

[@cayahere]

Glad this helped. It was pretty insane that a clear explanation about these concepts was nowhere to be found.

[@awesomethings9712]

It was really very simple easy to understand. Anyways belinda ang are you in china

[@awesomethings9712]

Belinda Ang I am foreigner in china too

[@BelindaAng]

@@awesomethings9712 No, I'm from Singapore.

[@ayanda1271]

A new world has been open to me on KZbin. The clarity is refreshing and is exactly on the subject I need at this stage of my start-up

[@kafeleboothe]

This is great! Though your math at 10:56 is off: 525k/4MM is 13.125% -- but assigning Gus 131.25k shares assumes there was 1MM shares to divy up, but they would've issued new stock for Gus. So he would've had 13.125% of the *new* total (incl. issued), so 151k shares, bringing the total to 1.151MM shares. This is a classic markup/margin calc error, a simple mistake (I didn't touch Madrigals calc, but I'm sure the above would change her numbers as well).

[@douglasocosta13]

This channel is making me fall deep in love with startups, more than I was alredy. Thank you very much for the excellent material!

[@ACE_77]

It's funny how much information this 15 min video has, really helpful, thank you and keep up the amazing work

[@slidebean]

🙌 thanks ACE!

[@infinite3397]

This is the best KZbin University has to offer around start ups. Your content and delivery keeps getting better and better. Much love and support from Chicago!

[@slidebean]

Thank you so much, Ninja! All the love back to you!

[@gymnastmohamed5809]

Dude you’re the best mentor that i have never got, but seriously man that was the best explanation of equity that i have ever heard thanks!!!

[@3519Marc]

Thank you , really enjoyed the presentation and was well worth watching. Note on the supercharged round you flipped the values for Gus and Mardrigols position. Gus with the 7 million cap should have a larger amount than Margo with her 1 million investment and 50 million valuation. please check it out thanks again for the video .

[@andreajackson4764]

I cannot thank you enough for this comprehensive yet approachable lesson! I look forward to watching more of your videos 🙏🏾

[@youjustcalledmewhat]

I found this channel by accident and now I'm glad I did. What a gem

[@inecosolarsolutions9022]

This looks very good, thanks for sharing the knowledge. Could please explain the number of shares for Gus and Madrigal at 10:57?

[@dustinthegael]

There is an error in the graphic at 11:49, green and yellow on the pie chart were switched

[@Rhh26]

dustinthegael thanks, ive had the video paused for 10 minutes wondering if my maths had gone wrong.

[@ryanackert1536]

@@Rhh26 lol same here bro lol. Had me all f'd up

[@Dr_Adar]

To be exact, I believe the error is the SWITCHING of of Gus's shares and Madrigal's shares. Gus should have 75k shares and Madrigal should have only 21.5k

[@shivamprasad7237]

Exactly. I've been breaking my head since long.

[@slidebean]

Issuing a correction/clarification. There's an error on 10:58, the colors and percentages for Gus and Madrigal are inverted.

[@IdowuObadeyi]

Now I'm a lil confused. My understanding is that Gus converted at (525k/4million valuation * 1,000,000shares). So, if that's the case the chart is correct as is. What do you mean "inverted"?

[@fredericpette6483]

I would suggest that the error is not on 10:58 (the whole slide is fine there) but rather on 11:59: there, indeed, Gus should be credited with 75'000 shares and Madrigal with 21'500.

[@rahulhotchandani5639]

@@fredericpette6483 this is correct. The error is at 11:59. the graphic at 10:58 is correct.

[@rahulhotchandani5639]

@@fredericpette6483 Just one question though, 525k investment at 4M pre money should lead to equity of 11.6%, not 9.6%. Am I right?

[@fredericpette6483]

@@rahulhotchandani5639 You would be right if the capital increase would stop with Gus. However, it is the investment from Madrigal that triggers the convertible note, so you have to go through the capital increase with Madrigal to get the real (final) percentages, which are displayed on the pie chart. In this case (at 10:58), you divide 131'250 by 1'357'500 and get to the indicated 9.7% for Gus...

[@the.titilayo]

Never been this clear about a complicated topic before! Thanks for making assimilation easy.

[@davetheman2615]

My man, you are a superb Educator!! All done in an Easy to understand way. These video's are simply brilliant, and a fantastic Aid to myself and i'm sure others who are embarking on a Tech start up journey, look forward to more video's

[@slidebean]

Thanks a lot!

[@boudjemaanaitkaci8059]

Dude you’re channel is definitely the #1 for this matter and your speeches are the best. Keep it up.

[@slidebean]

Thanks!!

[@luiscader]

This was surprisingly one of the most accurate and easy to understand explanation of SAFEs and raising Financing. Amazing, well job! super impressed that you have this knowledge at a young age. Great job man!! Will definitely share and subscribe.💯

[@XsmaelTheBest7]

14:02 Or the cap is reached ?

[@stephenbruce5431]

Absolutely amazing explanation! Subscribed!🙌

[@slidebean]

Thanks for the sub!

[@mal1que]

Trying to understand Convertible Notes all this while, you just made it super easy for me!!!

[@cayahere]

Amazing! Glad it helped.

[@EricMForte]

I can't THANK YOU enough for this amazing video. I have been in business 25 years, watched countless Shark Tank episodes, and have always been befuddled by what you just covered in 15 min. Well done!

[@slidebean]

Thanks Eric!

[@pharrellwowwow]

Hi Slidebean, how do you calculate the number of shares for Gus and Madrigal after dilution like on 10:57 and 12:00?

[@chriscowboyfan]

the ease in which you explain- wow you really know this inside and out- subscribed ! i can you see you over taking that plain bagel !

[@andormerks3834]

Yeah, I love the clarity and your friendliness ... not to mention the 'random' examples: Octopus Car Wash :D :D :D

[@PargatDhillon]

Correct me if I am wrong please, but I believe the cap table at 11:57 is wrong. Gus would get 75k shares and Madrigal 21.5k.

[@loubani]

Could you explain the percentages in the pie chart on minute 10:57?

[@razafazal7366]

Slidebran shud strt youtube mba 👍👍 Best content ever and such simplief explanations

[@HS-wd5mp]

Excellent explanation. I’m an entrepreneur and this is exactly what I was looking for. Thank you.

[@Gorboduc]

*THIS IS THE ONLY USEFUL STARTUP EQUITY VIDEO ON KZbin*.

[@michaeloshogbunu1891]

I wasted 8 hours reading blog posts. Meanwhile, your video nailed it in 15 minutes. wooow !!!

[@michaeloshogbunu1891]

For this sake, I now love the Slidebean brand!

[@dylandxothomas4132]

I've been trying to understand this for a looong time and finally, you laid it out in a way that very easy to understand Thank you brotha. I will definitely subscribe and share this content.

[@slidebean]

You're very welcome! Thanks for the sub!

[@EdlyDestinedds]

This was one of the most informative videos I have ever watched on youtube! Thank you

[@dmitriysolodukha9646]

Nice music. Actually almost no one explains how convertible notes work. I had to read lots of sources to get it. Thanks, man.

[@cayahere]

Great, glad it helped!

[@hosseinpro6379]

I watched many YC academy videos before, but your videos are more helpful since zip the most important notes in a short time.

[@etranchane8843]

On 12:01, the numbers in the pie add up to 105.2 instead of 100!! (how about : 7,2,45.5,45.5)

[@ndakigeorge8147]

Very eloquently delivered.. very much appreciated Slidebean

[@slidebean]

Thanks, ndaki!

[@ozzyfromspace]

Not trying to nitpick but isn't the pie chart at 12:00 off by like ~5%? I didn't actually add the percentages but it just didn't look right.... I'm sensitive to numbers so it made it really hard to follow, so what am I missing? Thanks :)

[@econgravy]

One of the best explanations of the topic ever and anywhere on the internet. Thank you. An instant subscribe hit.

[@slidebean]

Welcome aboard!

[@elisapetit4831]

I'm confused at 7:06 post money evaluation, with Gus 11% equity in the company. Should it be valued at 4.4MM instead of 4.5MM? Percentages confuse the hell outta me.

[@keitheian213]

Aren't the shares of gus and madrigal at 11:58 swapped? Because gus got the cap at 7m meaning 525k/7m=0,075 this times the 1m shares equals 75000. Madrigals 1mio come with a 50m valuation so 1/50=0,02 this times the 1075000 shares make the 21500 shares of Madrigal. Am I doing this right?

[@judozimbabwe7820]

listening to this from Zimbabwe . thanks

[@slidebean]

Thanks a lot!

[@MrDracorage]

At 05:44, why is Gus's stake 11% and not 12.5% stake? Even if it's rounded off conservatively, it should still be 12% right?

[@Mykol225]

Great explanations and production value. Good job!

[@cayahere]

Thanks for watching Michael!

[@culture04dc]

12:00 is mixed up. You switched Gus with Madrigal.

[@BlumsteinPiano]

I thought I was the only one who noticed.. thanks

[@parthgala4983]

Yes! There is a mistake there.

[@adrianbabis9420]

I am relatively new to this topic, but the percentage of each founder shown in the pie chart should be less. Right?

[@ramcharan6154]

@@adrianbabis9420 10:48 Can somebody please tell me how to calculate shares, how did gus end up getting 131,250 shares

[@skillionbikes7888]

Hey, great job seeing this mistake, I was totally confused when I recast the numbers in Excel and couldn't get the same answers, you really helped thanks

[@장선빈-i7x]

11:59 when you add up the numbers it is more than 100%. can you please give me some explanations as to how share percentage be over 100%?

[@Guhanga]

Hello,how do you come up with those number of shares?? @10:57,because total investment over valuation,it doesn't give me the same percent?could anyone explain please.Thanks

[@slidebean]

Are you on Discord yet? slidebean.com/live to join! Many of this questions will be answered there since early 2020!

[@vitikahappy]

Every time I watch this guy leaning forward I have a feeling that his head will pop-up from my screen any moment :-) But great explanation indeed. Thank you.

[@ysbm50]

In 10:58 How did you calculate MADRIGAL shares number = 226,250 ??

[@atlegilemarketing]

Thanks so much for explaining + providing tools 🔧 @ the end there. This helps us understand the stocks much better as a StartUp in Africa 🌍 💛

[@pv0315]

wonderful stuff. Many useful pointers - Interest coupon, Discount @ Valuation, Valuation Cap. Nice.

[@pierooms1271]

Simplest explanation to this complex problem. Thanks buddy😊

[@slidebean]

Thank you for watching!

[@prateeksingh1569]

How should the equity negotiations go about if the company has just been incorporated, not started operations and not making any revenue? In other words, a non-operating company 'X' having 2 co-founders gets an investor that gonna put in the whole amount to start the operations, how should the directors of the company 'X' negotiate the equity divisions with the investor in a manner that is most beneficial for them in the long term?

[@slidebean]

Hi! That question seems perfect for our Startup Café slidebean.com/startup-cafe Drop it there so you can start the conversation with Caya and other founders!

[@adi2807]

Hi, Is there an error in no. of shares per person calculated at 10:58 ? you seems to assume that first convertible note converts resulting in no. of total shares of company increasing. Then Madrigal invests $1M with $5M pre -money valuation at the new price/share which is now lower since no. of shares are now more than 1M. I verified the math to work (to get no. of shares in slide) only in this case. Shouldn't both convertible note and investor get shares at the same time when convertible note is being triggered as part of the seed round?(This results in Madrigal buying at $5 per share, Gus buying at $4 per share, resulting in founders each with 37.6% of company, Madrigal with 15%, Gus with 9.8%) Am I missing something here?

[@shawn1a2a3a]

Thanks for the valuable tips! I admire your work. But I am little bit confused can you explain to us at 12:00 how 1mm investment at 50mm pre money valuation can represent 6.8% stake post investment? According to my understanding, Gus should get 6.8%

[@z1sania]

they messed up with colors and numbers too. Correct numbers are: 1.96% for M, 6.84% for Gus, and 45,6% for each founder

[@cayahere]

You are correct- this was an error in the editing. Already added a note clarifying it.

[@AndriyYaroshenko]

@@cayahere Video is really cool! Thanks! Users who use Adblock - they don't see the notes) .. it's much better to update the video ..

[@AndriyYaroshenko]

@@z1sania What's the correct amount of shares should be issued for M & G?

[@z1sania]

@@AndriyYaroshenko Privet! just reverse the numbers. 75k for G and 21,5k for M

[@ashrafghaban1030]

Thank you, Caya, for the simplified explanation. I believe that in your second example with the CAP value, the shares, and stock percentage for GUS and MADRIGAL should be inverted.

[@slidebean]

Thanks for sharing!

[@jackeasyapproval]

Great video. I'm starting up a new tech company and i was kind of confused on the vocabularies of investing. Now it is clearer to me thanks to this video. It helped me a lot. I wish you were in my team. Thanks a lot for the information. Great job.

[@slidebean]

You're welcome Oscar! Keep watching as we cover more and more information that'll help you become more familiar with the terms as we go :)

[@Threshold370]

For Senario A at 10:50, Gus convert his $525k into 131,250 shares. After Madrigal invest $1M at a $5M valuation, Gus's shares only worth (131,250)/(1,357,500)*$5M= $483,425.41, which less than what Gus has invested in the beginning. Is Gus forced to convert in shares, or he has the option to take back the money in cash?

[@jayadeepbhat5910]

Thanks a lot for explaining these terms in such a simple manner mate! 🙏❤️

[@Manishsharma-nb1qw]

12:00 , on what parameters valuation marked $7M for gus, Why is it set randomly over discussion or any formula to set that figure?

[@johnnytsan4883]

Hi, I can understand the math on the chart at 12:00. What formula did you use to get to 21,500 share for Gus? And 75,000 for Madrigal? Thanks.Johnny.

[@johnnytsan4883]

Sorry, I can not understand...

[@dannylevy]

Impressed. I keep trying to explain this to friends. Glad to have found your video. Very well done. Especially the "Breaking Bad" touch. Loved it.

[@slidebean]

Awesome, thank you!

[@thecoachchris]

This is something I thought I'd learn day 1 of business school. I love KZbin because of content like this!

[@gibranmalik]

Never get an MBA. Let them collapse. God bless corona.

[@miladfrqn.3093]

@15:28 Gus and Madrigal shares must be replaced on the table, right?

[@SanjayKapoorDelhi]

Thanks for the wonderful video. Just wanted to clarify Scenario B at 11:59 minutes in the video, you mentioned $50 Million valuation, the total equity distribution %age is coming to 105.6% (48.4 + 48.4 + 6.8 + 2) which is more than 100%!! Also, I am a bit confused about the holding of Gus at 2% and Madrigal @ 6.8% in this distribution.

[@zwitterion1]

Amazing video - for a clinical background founder!! Thanks Caya and slidebean

[@slidebean]

Thank you for your comment! Glad it was useful!

[@ifbruschi]

hey guys! there's an error at 12:00. Not only colors and percentages are inverted... but also #of shares in the table. BTW, great work. Loving this channel so far.

[@bimskool]

YC does have a video on this but it's not as good in explaining dilution and the math behind everything. There is such a thing as a convertible note without interest called a SAFE which may or may not have a valuation cap.

[@dealiq]

You mentioned founders hardwork could be form of payment for shares. Can you clarify? How do you value the hardwork in $$$ for purpose of accounting?

[@slidebean]

Good Q! Welcome to discuss with other founders or Caya on Discord slidebean.com/startup-cafe

[@MEMEGOD30]

Great video. Can someone explain the share distribution table at 10:57? If Madrigal invests $1M at a $5MM valuation (20% equity), why is his total 16.7% instead of 20%? (I see how the math is calculated - 1,131,250 shares x 1.20% = 1,357,500 shares, giving Madrigal 226,250 shares at 16.7% of the cap table, but don't understand the reason behind his dilution from 20% down to 16.7%)

[@MEMEGOD30]

I am assuming the reason is because you are issuing new/additional shares to Madrigal instead of merely transferring shares from Walter/Jesse/Gus.

[@ronnycoding]

Excellent class, thanks for the video!!

[@thezengineer554]

You are a top notch teacher. Thank you.

[@slidebean]

Wow, thank you!

[@bluefkingstar]

Bravo for the clear explanation of convertible notes. But these terms are designed SOO in favor of the VC. Convertible note is basically a debt that you still need to repay (plus interests) and when you are doing well, has a crazy huge upside like 100x. If I can get a loan from the bank, if I do well I pay back the money, if not I declare bankruptcy. Why would I get a convertible note instead of a loan?

[@slidebean]

Thanks for the comment! Welcome to discuss further with other founders or Caya on Discord slidebean.com/startup-cafe

[@jameskillen6372]

Finally!! That was the easiest explanation and tremendously helpful! Thank you! Subscribed!

[@benjaminalexofficialgmailc5679]

James Killen well that’s nice,do you have any idea of digital currency,it really profitable .since it’s at a high rate

[@abdulsiyanbade2828]

unless I misunderstood this, I think there's a mistake at 12:00. I believe Gus should be 75,000 shares while Madigral would then be 21,500 shares. Great content though! Learned a lot here

[@MartinGlastetterJr]

Nice work, simply explained, very helpful. Cheers!!

[@slidebean]

Glad it helped!

[@reaper081091]

Hi Mr. Caya, How do did you determine the proper pricing for your service?

[@slidebean]

Hi! We tell a little bit about that here: kzbin.info/www/bejne/rnWbcmqbjZdpjKM

[@reaper081091]

Slidebean: Startups 101 Thank you. 😁😁😁

[@hessam97]

I haven't seen a more thorough explanation anywhere else yet. This is a great video. Thanks!

[@IamnotaCat888]

Excellent. Do you have a video on raising bonds like green bonds for entities towards developing equity?

[@slidebean]

Not yet! Please vote/add your favorite topics here: slidebean.com/youtube-suggest-a-video

[@Exodias2000]

How are you getting the 226,250 at 10:58? That is really confusing me. I got the 131,250

[@spiderdog196]

Brilliant post. Just subscribed. Going to watch every video you guys have. Thank you so much for the time and effort putting it together. Invaluable resources

[@slidebean]

Thank you sooooo much for your feedback and subscription! Make sure you join Caya on Discord so you can ask him any questions you may have. Slidebean.com/Live

[@allencartwright2174]

This was amazing video! I've been looking for explanations on understanding start up funding when it come to these terms but there is nothing thanks a lot Slidebean!

[@cayahere]

Allen Cartwright thanks a lot for watching, glad it helped!

[@jorgerangel2390]

Congrats, this is the best video explaining equity in detail.

[@abdifataahify]

Great explanation and content. The perfect overview I needed before I start narrowing my research

[@slidebean]

Glad it was helpful!

[@garvgoyal2284]

i love how you took breaking bad for reference

[@anitakanu5252]

Hi, wonderful video by the way. I have a question tho; while calculating the value of stock that Gus owns, how did you arrive at 125,000 and 11%

[@erikgonzalez3450]

1M shares equals $4M. This means 1 share equals $4. Gus purchased $500,000 worth of shares. $500,000/4 = 125,000 shares. He arrived at 11% because 125,000 shares out of 1,125,000 shares is 11%.

[@try_to_laugh-i2j]

@@erikgonzalez3450 Yet, the valuation would in that case be 4.5M...

[@chemsss8582]

@@erikgonzalez3450 You are a LEGEND. Thanks for the explanation

[@memedemy3905]

This is great, the only complaint is that you made the example with the cap with a different valuation so the difference is not very clear. The cap is essentially a way for the early investor to make sure his money is not too diluted?

[@rwmm8642]

So then if we are investing say $1000.00 dollars in early startups are returns wont be that great? For instance, they pitch that if we get into these startups on seedinvest, startengine, etc etc that we have the chance to become ultra wealthy. So many of the companies offer convertible notes like you mentioned in this video.

[@slidebean]

Good Q! Welcome to discuss with other founders or Caya on Discord slidebean.com/startup-cafe

[@bronzebond4869]

This channel is awesome. Thanks for ALL of this solid content and honestly telling your story. Shout out to the KZbin algo for sending a good teacher my way

[@smediumlarge]

I learned things here in this video that I didn't even learn in business school.

[@saibharathwajsaikannan3783]

Pretty much clear! Enjoyed. Looking forward to watching an in-depth vlog on employee stock - pros and cons!

[@bogereayub1369]

Does the first invester get a discount to all new rounds or on the first round only.

[@slidebean]

Good Q! Welcome to discuss with other founders or Caya on Discord slidebean.com/startup-cafe