Don’t get that investment to beware of these pits Everything will be fine..

pit (1): investment options before the

" in each round of financing process, investors will require the company to adjust the employee’s option, and the basic requirement is to increase the proportion of employees in the amount of financing before the option. The above phenomenon must be familiar to everyone.

was identified, which is actually a 99 investor. Through a case to explain.

case assumptions:

the proportion of a company’s current shares: the founder of the team, the original investors and employees options were 70%, 20% and 10%, a total of $100%. The current round of financing needs to get $5Mn, after the financing of new investors to get a 20% stake in the current round of investors feel that the existing employee options are not enough, you need to add to 15%

program 1: after the completion of the current round of financing, the immediate additional options to ensure employee options to 15%. Under this scheme, in order to ensure that the employee option to 15%, the new investor’s shares eventually diluted to 18.5%.


program 2: before the completion of the current round of financing, immediately set the option to 18.8%, to ensure that after the completion of the financing (a new round of investors to get a stake of $20%), employee options are diluted back to 15%. The new investor’s shares ended up at 20%.


this is actually a very simple mathematical problems, using mathematical language description is

program 1: a constraint for employee options 15%, the three (founder team, the old investors and new investors), such as the proportion of dilution. Big talk is: these three together to allow employees to increase the stock option program 2: the two constraints for employee options and new investors, the new two of the 20%, the two (founder of the team and the old investors), such as the proportion of dilution. Big vernacular is: the two together to allow employees to increase the stock option

the final result and the difference is obvious: the new investors spent a lot of money, in the program 2 get more shares 1.5% (=20.0%-18.5), while ensuring that employees have the same equity incentive. This small cheap is provided by the founder of the team and the old investors.

pit (two): Director option

financing in start-up companies, especially in Angel round, A round and B round of early financing, all funds will be required to board seats. On this basis, the individual funds will continue to require start-up companies: on behalf of the fund to become a director of the individual (usually the fund is responsible for the project partner), to its directors options or shares.

The reasons for the use of the

fund are as follows:

we have a large number of fund projects, based on human nature, will naturally give options to directors to provide more services and care for the enterprise to bring greater value and

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