As counsel to many high-growth, VC-backed (or soon to be VC-backed) startups, I’m often asked by my clients to prepare or review Excel spreadsheets, from simple formation cap tables to highly complex exit waterfalls. It’s a quirk of being a corporate lawyer, particularly in the emerging growth space, that tech-savvy clients, even some with MBAs, will rely on attorneys who often have little formal training in quantitative skills, or even in basic Excel, for some of the most critical information and modeling about their companies. Getting these wrong can result in increased legal fees, deals dying in due diligence, or the possibility of litigation after deals close.
In an age of increasing belt-tightening, when valuations are going down, VCs are getting more choosy, and some law firms (not mine!) are raising rates and laying off younger and likely more Excel-savvy associates, it’s helpful for founders to be able to handle some of the basics themselves. At the very least, it’s nice to be able to follow along with your lawyer’s or investor’s calculations, make a quick sanity-check model for yourself, or whip up an informal high-level model for your next financing round or two without spending thousands in legal fees.
Additionally, some capitalization-management platforms are targeting startups earlier and earlier with their expensive proprietary tools. While these tools are great for complex cap tables for more mature companies, there’s no real need for a seed- or pre-seed-stage startup to spend thousands per year on these tools. We at Optimal Counsel want to make a version of the tool we’ve used on hundreds of deals available for free to startups. We want you to stay organized, informed and lean, equipped with all the tools you need to model common areas of growth, whether that’s hiring or raising money. Startup financing has gotten more complicated in recent years, but that doesn’t mean modeling should be completely inaccessible without fancy tools or lawyers. No automated system (including Excel) is perfect, but we hope this can save you some time and money.
One of the great things about Excel is that if you don’t know how to perform a given calculation, you can find many resources online – even ChatGPT can help with formula syntax. These resources are great for classic “business” things like breaking down the number of widgets sold over various territories over different time frames, or other common data analysis tasks such as analyzing grade distributions in a high school class. But I’ve found over my career that not much is out there that walks a first-time founder through critical startup functions like modeling a convertible note round, determining the size of an equity plan, calculating participation rights for investors, determining how much a down round will dilute the founders and early investors, and modeling exit scenarios given multiple types of equity.
I should tell you up front that I have no MBA or quant-focused degree, just a humanities degree and a JD; I have very little formal training in Excel; and everything in this collection of posts comes from things I’ve learned on the job in my nine-plus years of practicing corporate law. No Excel examples on this site are proprietary to my firm, Optimal Counsel; indeed, our standard capitalization table and financing round modeler that we provide to new clients is even cleaner and more user-friendly. My general approach to my topics and examples is to imagine a founder who wants a quick-and-dirty way to answer questions like “By how many shares should I increase my option pool if I want 10% available?” or “How can I easily track how many stockholders I need to approve a preferred stock round?” For every topic I tackle, there may exist scores of other ways to accomplish a task that are more “correct,” more efficient, or just more elegant. What I offer is only what has worked well enough for me and, by extension, my clients. If you find yourself scoffing at my hacky ways, well, these posts may not be for you.
Of course, you should always consult your company’s trusty startup lawyer to help with any legal or cap table question. It should go without saying that state corporate law, IRS rules, securities laws, and any agreements your company may be party to have nuances that you aren’t trained to know. It’s your job as a founder to build a great business and a great team and create value for your stakeholders and the world. It’s our job as counsel to watch out for legal traps and opportunities and advise you accordingly. If you don’t already have an experienced startup lawyer, are curious about how we’re different, or just want to pick our brains, let us know.
It’s a well-worn joke among lawyers that clients can know just enough to be dangerous. Think Condescending Wonka saying, “Oh, you Googled broad-based weighted average anti-dilution protection? Well, you certainly don’t need me to help negotiate your term sheet.” But at Optimal Counsel, we believe strongly in the value of founder self-education, which is why we are providing this blog and the open-source model. We also provide our clients access to a proprietary knowledge base with FAQs covering common startup legal basics. It is my hope that making some useful Excel tools marginally more accessible to founders, we as lawyers can spend more time helping you with high-level strategy and critical details and you as an executive can save your company some hard-earned cash.
Finally, this is not meant to be a truly ongoing blog; rather, I’ll update it when I run across a topic that seems useful or if I need to fix, clarify or tweak an existing post. Please feel free to reach out to me if you have a startup-adjacent Excel-related question that you’d like to see covered, or if you have any questions or comments about the existing material. As of May 2023, the next planned additions will be a waterfall model and reference guides to useful startup-related math and Excel keyboard shortcuts.
Note that all references to keyboard shortcuts and menu items in this blog assume you’re using Excel on Windows. If you’re using a Mac, you can easily translate via Google. If you’re using GNU/Linux or Unix, you’re probably not using Excel, and you’re on your own.
Download the “open-source” capitalization table model here.