The relationship between valuation and option pool
And explained it from the perspective of venture capital.
. For entrepreneurs, knowing more, it is obviously better to negotiate a good price for their own company. The following is the text: when financing
There is usually a very controversial issue between entrepreneurs and VCS, namely "option pool". My friend Mark Pincus, the co-founder of Zynga, likes to say that option pool is another way for VCS to depress the company's valuation. However, today I want to talk about my views on this.
First of all, briefly explain: company valuation is divided into pre-financing valuation and post-financing valuation. For example, if the pre-financing valuation is 4 million dollars and the financing is 6.5438+0 million dollars, then the post-financing valuation should be 5 million dollars, so the equity dilution brought by this 6.5438+0 million dollars is 20% (that is, the 654.38+0.000% equity of the entrepreneur is diluted to 80%).
If VC wants you to set up a option pool at the time of financing according to the pre-financing valuation, let's take a look at the situation again: the pre-financing valuation of the company is still $4 million, the financing is $6,543,800+0,000, and the post-financing valuation is still $5 million. But if you want to set up a 654.38+05% option pool (converted into the actual value of 654.38+05% × 5 million = 750,000), then the equity distribution at this time will become as follows: 65% of the founder, 20% of VC, and 0/5% of unpublished option pool/Kloc. That is to say, when an investment with a total amount of $654.38+$00,000 is introduced, the diluted equity of the founder is not 20% but 35%.
No wonder.
Mark said that this is "the disguised price reduction of VC", and entrepreneurs will definitely not like this practice. However, my specific views are as follows:
The first point is that VC should treat this matter very straightforwardly, because it is essentially a simple price issue. For example, in the above situation, if the pre-financing valuation is reduced to 3.25 million dollars, I am willing to invest 6.5438 million dollars without setting up option pool, but if the valuation remains at 4 million dollars, then I will ask the founder to set up such a option pool. These two options are the same. So what the founders have to do is to calculate the valuations of companies without option pool and with option pool before financing, so that there will be less arguments when financing.
In my past investment history, founders were usually asked to set up 65,438+00% option pool, and 65,438+05%, but few, even less 5%. However, this figure is not randomly selected or guessed. The founder needs to make a good calculation to be more handy in the negotiation with VC.
Finally, I want to end with a little story of my own. When Mark Pincus, the founder of Zynga, and I held the first round of financing negotiations for Zynga, we had a heated debate on this issue because he was very reluctant to set up such a option pool. Later, when we agreed that this was just a valuation issue, the negotiation became much easier. In the end, he got the valuation he wanted, and I got option pool.