Decoding Equity And Convertible Notes - Startups 101

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Understanding stock, preferred stock, options, convertible notes, angel investing, venture capital, and other fundraising instruments can be truly overwhelming.
If you are an early-stage startup company in the tech space, the best way to raise capital is with a convertible note or a similar instrument. However, to understand how those work, we first need to understand how stock works.
#startups #fundraising #venturecapital #slidebean #startuplife
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Our team of experts can also help you write and design your pitch deck and build the financial model for your startup.
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Caya
Twitter: / cayahere
LinkedIn: / caya

[@slidebean]

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

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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

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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!

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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! :)

[@ibukontraktor2783]

No it doesn't.

[@drgLACity]

Anyone want to invest on my start up?

[@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.

[@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.

[@andreajackson4764]

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

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

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General Science 🙌🙌

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I so agree

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

[@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!!!

[@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.

[@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

[@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!

[@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.💯

[@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!

[@saibharathwajsaikannan3783]

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

[@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!

[@boudjemaanaitkaci8059]

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

[@slidebean]

Thanks!!

[@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).

[@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!

[@hessam97]

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

[@mal1que]

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

[@cayahere]

Amazing! Glad it helped.

[@youjustcalledmewhat]

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

[@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 .

[@HS-wd5mp]

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

[@sonydominates]

Awesome video!! I've learned this before, but definitely not this visually compelling and concise manner! Awesome work as usual!

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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 !

[@Mykol225]

Great explanations and production value. Good job!

[@cayahere]

Thanks for watching Michael!

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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

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

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

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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 :)

[@econgravy]

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

[@slidebean]

Welcome aboard!

[@hosseinpro6379]

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

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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

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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

[@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!

[@jayadeepbhat5910]

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

[@jorgerangel2390]

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

[@Tyrell_ai]

Man, your video makes it so easy to understand. Really thank you!!!

[@EdlyDestinedds]

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

[@clarkmak714]

You absolute legend. This was great. I was doing this by reading articles and it was doing my head in. Thank you

[@slidebean]

You're very welcome :)

[@Arcdiab]

Thanks for your effort, the video is very helpful! However, there are some mistakes; First, in the second scenario when you applied the valuation cap for Gus you mixed up the percentages of Gus and Madrigal. Second, as Gus is limiting the dilution rate on his shares with the valuation cap he had negotiated before, then the shares of the founders have to dilute furthermore to balance the math, if you sum up the percentages in your example you will get over a 105% ownership of the company, how is that possible?

[@robwalker3240]

Great explanation, I ran here before a start-up interview. Subbed! Thank you.

[@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

[@abdifataahify]

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

[@slidebean]

Glad it was helpful!

[@donnacooney4426]

Excellent overview - very simple to follow in such a confusing environment

[@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!

[@3dmonkey4hire]

Great video with very clear examples of the process. Well done!

[@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!

[@ryansmith8201]

Great explanations keeping it simple and straight forward. Thank You !!!!

[@slidebean]

Thanks Ryan! 😉

[@benjaminalexofficialgmailc5679]

Ryan Smith yeah really smart,You thought of investing in bitcoin really profitable you know

[@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%

[@ChuckBalsamo]

Best video on convertible notes! Wow you are such a great presenter. Thank you!

[@slidebean]

Glad it was helpful!

[@atlegilemarketing]

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

[@pierooms1271]

Simplest explanation to this complex problem. Thanks buddy😊

[@slidebean]

Thank you for watching!

[@ChrisPodcasting]

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.

[@inecosolarsolutions9022]

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

[@jeffrobertson6385]

Wow, thank you, this is a great tutorial. So helpful!!!

[@mazdamatt7703]

Incredible content as always 🙌🏻

[@slidebean]

😊 thanks!!

[@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.

[@waleolapo]

Thanks guy many of my questions answered in one video. really appreciate your work

[@slidebean]

This is awesome!

[@cayahere]

You're welcome, dude.

[@saadiquemerchant]

Also, thanks for this amazing video. I'm so used to learning alot from your videos that I forgot to thank you guys for putting it up

[@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!

[@12369jp]

This is the explanation I've been looking for my whole life!

[@slidebean]

Wow! That's a big deal! Thank you, Justice!

[@ndakigeorge8147]

Very eloquently delivered.. very much appreciated Slidebean

[@slidebean]

Thanks, ndaki!

[@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.

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Great video and very easy explanations. Thanks for sharing.

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Good quality and great content love your videos man. keep it up.

[@slidebean]

Thanks! Join us live on Discord in case you have any questions! slidebean.com/live

[@MartinGlastetterJr]

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

[@slidebean]

Glad it helped!

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your videos are amazing! answered some questions I've always wondered.

[@slidebean]

Thank you for watching!

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Excellent class, thanks for the video!!

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Dude you are very good and so explanatory. Good Job

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Absolutely amazing explanation! Subscribed!🙌

[@slidebean]

Thanks for the sub!

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best video with simple language... thnkuuu!!!

[@2muchcoffeeproductdevelopm269]

Excellent video! Thank you indeed, we will use this as well as several videos more to potentially educate our customers as for VS funding. Thank you!👌😉

[@slidebean]

Glad it was helpful! And, sure! Feel free to share!

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seems like I have lot to learn yet... thank you for the quality content

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Excellent summary - so incredibly helpful thank you

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Very Helpful work guys. Kudos.

[@cayahere]

Thanks for watching!

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Thank you so much. This has helped greatly

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You are a top notch teacher. Thank you.

[@slidebean]

Wow, thank you!

[@saikiranbeesam1367]

Your videos are the best. Thank you so much!

[@pv0315]

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

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First channel which I’ve subscribed on my interest...👍🏻

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Awesome !! U are really helping out guys like me.

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Amazing job- thank you for creating this valuable content!

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Could you do a video on how you get your first customers/traction? Buy ads, marketing, etc. how did you do it? :)

[@cayahere]

Will do. A little bit of that story here: kzbin.info/www/bejne/rJrcfIqKm7lgnZY

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Don’t pay for customers!

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You explained it so well! Thanks from a first time entrepreneur :)

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This is a fantastic video, keep this same method of explanations, it works

[@udayanw]

Wow. This was so well explained. Thank you

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Damn! Best video I have seen about the topic. Good work!

[@slidebean]

Wow! Thank you!

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thanks for this!! you made it easy to understand!!

[@zwitterion1]

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

[@slidebean]

Thank you for your comment! Glad it was useful!

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brilliant , simple and clear!. thanks!

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Thank you so much for your content, I've learned so much

[@judozimbabwe7820]

listening to this from Zimbabwe . thanks

[@slidebean]

Thanks a lot!

[@syabangena]

At valuation cap a discount is not applied? Thank you for the great video!

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This is very good very informative and straight to the point thank you. I have subscribed

[@slidebean]

Thanks for the sub!

[@anish.wijesinghe]

Extremely helpful. Thank you!

[@cayahere]

Thanks for watching, Anish. Glad you found it useful.

[@winterfox7028]

You explained very well . Enough to start a company .

[@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?

[@aymenjaouani8761]

Thank you so much! That was trenmendously helpful.

[@slidebean]

We are glad you found it useful!