[HN Gopher] Show HN: Startup funding simulator
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Show HN: Startup funding simulator
Hi HN We built a tool to help founders understand how modern
fundraising (with safes) works, and how much dilution you can
expect when raising money. The project is open-source. The code is
a mess right now, but it'll get better I promise. You can also help
with that. We didn't build this to make money. We genuinely did it
because we were looking for it, and couldn't find it. We're in
fact in the process of fundraising for a company, and at first
glance the process looks simple. Just an excel sheet will do! But
then the more we dug into it and tried different simulators, the
more we realized that it's more complex than it looks. We even
signed up to Pulley, Carta and others just to run simulations. But
they're a bit confusing. TL;DR: Understanding modern startup
funding and knowing how much dilution you'll face is hard. We built
a tool that'll hopefully help with that. You can add Post-money
Safes, priced rounds and issue options to employees, and you can
see how that affects your ownership at every step. You can also
simulate an Exit scenario and see how much money you'll be left
with. --- Some examples of complex stuff: - There are many
different types of safes. They all convert at the first priced
round, but in different ways. Some are through discount, some are
uncapped, some have a fixed valuation cap, and some have both a
discount and a valuation cap. - All safes (before first priced
round) convert at the same time. They don't dilute each other,
which is what happens in the rest of fundraising. - Investors
often require you to set aside some options. This one is
particularily nasty. Basically, if an investor expects you to set
aside 10% as options, and expects to get 10% equity, that's what
should appear in the subsequent cap table. However, calculating the
options is difficult, and is often a circular calculation (even
Kirsty Nathoo from YC says it's complex and avoids showing the
calculation in the Safe video "Understanding SAFEs and Priced
Equity Rounds") - Safes and priced rounds can have pro-rata, but
don't always exercise it - Pro-ratas of safes are taken from the
priced round money, so you'd expect the safe holder's equity to
remain the same if they exercise it. BUT ... it gets diluted by the
new options issued. - Safes can have an MFN provision, which
defers the valuation discussion/calculation until the moment the
priced round is about to close. With a mix of discounts, uncapped
and valuation caps, it gets tricky to know which deal is "better".
- ... Assumptions and limitations: - Only post-money safes and
priced rounds. - No down rounds. There's a bit more complexity
around liquidation preferences and anti-dilution rights - we don't
support that now. It only matters if you're simulating a "bad"
situation. But come on, it's a simulator -- Be optimistic. - No
pro-rata caps. We might add that soon, to fully support the YC
standard deal. But for now, if an investor gets a pro-rata, they
can exercise either all of it (keeping their original ownership) or
none. - Safes' pro-ratas disappear after the first priced round.
(I think this is what happens normally?) - Remaining available
options get redistributed evenly at exit. - The round is the
investor. For the sake of simplicity, consider "Series A" as the
combination of all series A investors into one, super-investor.
Let us know what you think!
Author : zikero
Score : 271 points
Date : 2024-01-24 18:11 UTC (4 hours ago)
(HTM) web link (www.fundingsimulator.com)
(TXT) w3m dump (www.fundingsimulator.com)
| parkaboy wrote:
| This is SO awesome! Great work! This is really nice for getting a
| quick ball-park idea on strategy or getting up and running on the
| early-side.
|
| This is MUCH cleaner/nicer than e.g. Carta's simulation tool. My
| co-founders and I will definitely be using this.
|
| Thank you for putting this together.
| jacquesm wrote:
| Very nice work, this will help to play through different
| scenarios. It might be worth it to show that different industries
| have very different up front capital requirements and that for
| instance a template for doing a hardware startup has rough
| indications of how much of the total funding is required at which
| stage of the venture.
|
| This is where I see a lot of people make - very costly - mistakes
| in terms of dilution, they start a hardware startup or some other
| capital intensive track but use SaaS levels of capital
| requirement and timing to plan their liquidity. This obviously
| can impact the business in very negative ways (or can even cause
| it to go under). So to inject some realism into the figures at
| various phases using templates might be a useful thing.
|
| Another thing you may want to consider is to put sweat equity and
| funds supplied by the founders in there, as well as a way to
| administer friends-and-family rounds, and to be able to play
| through a founder departing scenario. I realize those are complex
| things to do, and obviously you're under no obligation to do any
| of this.
|
| Thank you for making this and for putting it out there.
| FergusArgyll wrote:
| Simple, easy to use, very nice
| parkaboy wrote:
| I'm not sure if this feature request makes sense: also enabling
| having an option pool created at the SAFE round. I've had a
| situation where a lead investor requested an option pool created
| as part of a pre-seed round on SAFEs.
| zikero wrote:
| thanks for the suggestion! we had the same thing happen as
| well. although it's not very standard I think in the case of
| safes. a dirty way now would be to do "Resere/give options"
| before the safe.
| parkaboy wrote:
| Something like that would be awesome, thanks.
| teaearlgraycold wrote:
| Looks great! Personally I'd make it so state changes don't push
| history into the stack. Users don't consider those inputs
| comparable to a page change. It's more like typing into a form.
| zikero wrote:
| wanted to make any simulation shareable by copying the url. but
| you're right, there has to be a better way ...
| teaearlgraycold wrote:
| Share link in the corner is the way. Or just do a "replace"
| instead of "push" (using NextJS terminology)
| s4i wrote:
| history.replaceState (instead of history.pushState) is your
| friend.
| methodical wrote:
| As somebody else suggested just a share link would be a good
| way to allow sharing. Alternatively, for either a share link
| or as just a way to keep the state in the URL, I'd recommend
| B64 encoding the data as opposed to just directly escaping
| it. URLs have a maximum length (forgot off the top of my
| head, may be 1024 or something), so storing large stringified
| objects usually results in issues as opposed to just encoding
| it. It also makes for a more logical URL structure of
| fundingsimulator.com/{b64}. This is if you wanted to keep the
| URL as the single source of truth on the state, otherwise you
| could keep state internally which can be initialized by
| optional URL state (structured as stated before), and then
| just encode it and put it in a URL which is copied to
| clipboard when a share button is clicked.
| sjwhevvvvvsj wrote:
| Bootstrapping a business with my savings to retain full control
| is both the wisest and hardest thing I've done.
|
| I don't understand why people are so quick to start giving up
| control out of the gate for software companies. Servers are
| cheap, it's not like in say, manufacturing where you need a
| factory.
|
| You're gonna let some VC bro tell you what to do for a SaaS
| product? Why exactly? Just go to market on the cheap.
|
| I've had every quarter profitable since founding, and never taken
| a dime in VC. I'm not going to be a billionaire, but that's fine,
| I want to chart my own path.
| jacquesm wrote:
| It works as long as you don't have funded competition.
| Especially if they start giving away the thing that you charge
| for. Then you need to have deep pockets to wait it out.
| sjwhevvvvvsj wrote:
| Therein lies the rub, but if you are turning a small, but
| real profit, and you then need a cash infusion you'll retain
| far more control if you already have proved you can make
| money.
| jacquesm wrote:
| Been there, done that and no, you're wrong. You won't find
| any investors if there is already a very well funded
| competitor that gives away the same product. They will
| spoil both the market _and_ your funding chances. You can
| only get that funding before such an entity appears,
| afterwards it 's a matter of patience until they inevitably
| self destruct.
| user_7832 wrote:
| I presume this would not really apply to "mature" hardware
| markets with a large number of companies already present and
| selling?
| jacquesm wrote:
| Entering an established market as a start-up is a
| completely different ballgame than 'greenfield', both
| funding wise and how you need to tackle the whole problem.
| user_7832 wrote:
| Thank you, do you have any recommendations for learning
| specifically for established markets? Eg books/podcasts
| etc
| lobsterthief wrote:
| This also assumes you have the skills required to get your
| business to the point where it's self-sustaining.
| sjwhevvvvvsj wrote:
| If you don't maybe you shouldn't be starting a business in
| the first place.
|
| The number of "zero interest rate" business that's still need
| to be culled is too damn high.
| codegeek wrote:
| I run a bootstrapped business and I hear you. However, VC
| Funding can make sense for certain cases. I do think that too
| many people raise VC prematurely. The best path in my opinion
| is:
|
| 0-PMF/100 customers: Bootstrap it
|
| PMF-Scale: VC Fund if you can show 100% growth each year and
| forward. If the market is big enough (TAM etc), This can become
| a billion dollar company and for this to happen fast enough,
| you will need funding. Also, the reason you need funding here
| is because it is very tough to scale a business slowly. Either
| you grow fast from here or die/stay average growth.
|
| Again, like you said, nothing wrong with "chart my own path"
| but VC funding has its needs. It's just that most people try to
| raise funding way too early and hence cannot keep up with the
| growth requirements and eventually either die or sell/pivot for
| peanuts.
| user_7832 wrote:
| > PMF-Scale: VC Fund if you can show 100% growth each year
| and forward. If the market is big enough (TAM etc), This can
| become a billion dollar company and for this to happen fast
| enough, you will need funding. Also, the reason you need
| funding here is because it is very tough to scale a business
| slowly. Either you grow fast from here or die/stay average
| growth.
|
| This makes sense, but I wonder how truly "necessary" funding
| is. I understand that funding very (relatively) quickly can
| help turn a "eating ramen for dinner" salary to a a-regular-
| job levels of salary which is very good. But is there a
| business risk to grow "organically"/through word of mouth?
| Assuming it is possible to grow the company only working part
| time (which is admittedly a very big assumption),
| bootstrapping sounds slightly better.
|
| > It's just that most people try to raise funding way too
| early and hence cannot keep up with the growth requirements
| and eventually either die or sell/pivot for peanuts.
|
| Thanks, that's insightful!
| romanhn wrote:
| The business risk is that another company with more money
| and therefore resources will see your PMF and will move
| faster to capture the market.
| user_7832 wrote:
| Thanks, that makes sense. I would imagine patents could
| help somewhat but from what I've learnt they're not cheap
| and can still only help so much.
| codegeek wrote:
| The thing with Funding is that you shouldn't really need it
| but it's more of a fuel when there already is fire (aka
| PMF). Once you have the fire (most people fail to get to
| this point anyway), then you decide if fueling that fire
| with VC dollars make sense or not for your goals.
|
| The problem is that lot of entrepreneur _need_ funding to
| even start because they don 't have enough resources to
| start something (may be they need cash, people etc). But VC
| dont fund because you _need_ cash. They fund because you
| are able to convince them somehow that you are building a
| unicorn.
| user_7832 wrote:
| Thank you, that makes sense. Btw is PMF = product market
| fit in this context?
|
| > They fund because you are able to convince them somehow
| that you are building a unicorn.
|
| I'm admittedly very naive about this, but do they really
| expect this all the time? (Especially in physical and
| non-digital markets?) If you have a healthy growth and
| projection but no plans to say exceed 100M are you
| limited by how many VCs are interested?
| romanhn wrote:
| The big VCs typically will expect extreme growth, because
| the big wins are needed to make up for the losses they
| will incur on many of the their other portfolio
| companies. That said, there are smaller VCs and private
| equity firms who will be happy to fund companies with
| lesser aspirations. Just don't expect comparably big
| valuations and you'll likely need to cede more control
| for less money.
| codegeek wrote:
| "do they really expect this all the time"
|
| This is an interesting question. I don't know if they
| believe but they def _want_ to believe because without
| unicorns, they won 't survive as most startups fail or
| have mediocre returns which is not enough for VCs to
| justify to their own investors/LPs.
| primitivesuave wrote:
| Bootstrapping requires a rare breed of founder who is
| financially secure enough (or frugal enough) to manage life on
| a reduced salary, capable of building useful products on a
| budget, and willing to risk the missed opportunity cost of a
| cushy Big Co position. In my experience, the hardest thing to
| master is the actual building - plenty of people are
| bootstrapping "theoretically useful" inventions in
| basements/garages/etc, that don't solve actual problems. Such
| people can really benefit from VC oversight and business
| acumen.
| user_7832 wrote:
| > Such people can really benefit from VC oversight and
| business acumen.
|
| Would it not be financially more prudent to hire/consult
| experts, particularly if you can get access to a
| startup/accelerator program? Even without easy access, there
| is no dilution of ownership.
| jimnotgym wrote:
| It is not easy to hire/consult that level of person though.
| They are too busy being VCs
| user_7832 wrote:
| Thank you, that makes sense.
| mlhpdx wrote:
| I don't know that it's really that rare. I look around and I
| see people with the fiscal responsibility, knowledge and
| ability to get things done in every quarter.
| echelon wrote:
| Would you feel comfortable telling a VC-funded business about
| your market? Or having one find you?
|
| It's a dark forest. They see you, they covet your traction, and
| then they raise to outmaneuver you.
|
| You might win, but that's a tremendous amount of stress dealing
| with a better-capitalized foe.
| elevenones wrote:
| I sold my biz for 16B then went back and deleted the funding
| rounds and founders. I made 16B. I like this.
| zikero wrote:
| pre-tax though
| baq wrote:
| if you pay taxes you're winning
|
| if you have to pay taxes but don't have cash to do it, you're
| losing. fix something
| withinboredom wrote:
| Or hire better accountants. No, I'm not talking about the
| creative kind, but the kind that tell you "hey, your cash
| reserves are projected to be too low" kind.
|
| If your accountants are telling you when it's too late; you
| are losing. Hard.
| sdflhasjd wrote:
| I somehow broke it, I got a $5 investment against a $998B
| valuation and then sold it for $199B to gain $1.9T of profit???
|
| Edit: "You get $InfinityB" I think I won.
|
| https://www.fundingsimulator.com/?data=EL%2BVcsg%3B%3BYou%2C...
| blackmesaind wrote:
| Why don't we use this hack IRL?
| sdflhasjd wrote:
| Probably the annoying taxman who takes 20% of your
| $infinity, which just so happens to also be $infinity.
| gtirloni wrote:
| Your infinity is larger though so it's all good.
| blackmesaind wrote:
| Not quite, anything subtracted from itself is zero.
| However, if you send me Infinity bitcoin, I will send you
| 10 Infinity bitcoin back (I am Expert Hacker).
| todd3834 wrote:
| Reminds me of Hilbert's paradox of the Grand Hotel
|
| https://en.wikipedia.org/wiki/Hilbert%27s_paradox_of_the_
| Gra...
| Draiken wrote:
| I'd love more help bubbles, since I'm not familiar with a ton of
| these toggles and boxes.
|
| I'd also love to see how much employees would get, not just me. I
| know people generally care more about themselves, but seeing how
| it would work if you gave a lot more to employees would be great.
| mlhpdx wrote:
| Agreed. Adding the employee point of view would make this tool
| an excellent education piece. It's always a struggle to
| explain.
| eigenvalue wrote:
| Very cool and has a nice, easy interface. Would be awesome if you
| could assign time intervals to the vertical lines connecting
| events, and then at the end you could show the IRR and multiple
| on invested capital for each participant (except where that
| doesn't make sense, like for employees). Would also be nice if it
| had reasonable assumptions for fixed costs such as lawyer fees
| for each round, or investment banking fees for the exit sale.
| HDogueto wrote:
| I've literally abandoned my founding dream because of the
| complication and lack of visibility I was dealing with. This
| could have been a game changer for me! Keeps us updated with you
| work pls Ready to provide dev assistance
| AznHisoka wrote:
| How did you decide on the "default" valuation based on funding?
| Is it based on historical numbers?
| DonHopkins wrote:
| Where's the button to negotiate using hostility and rudeness?
|
| https://www.youtube.com/watch?v=N6Zz-Nkkaxc
| mikikian wrote:
| Great work! It would be cool if there was an option to "Exit /
| Sell the Startup" after a SAFE round i.e., before a priced round.
| This would simulate Jason Lemkin's one round scenario:
| https://www.saastr.com/venture-backed-theres-a-third-way-jus...
| zikero wrote:
| working on this one! thanks
| echelon wrote:
| Could you show hypothetical dilution at the SAFE level too?
| And continue to show it on the graph edges after a priced
| round?
|
| It'd also be cool to see hypothetical valuation of equity on
| the line/edges too.
|
| This is an awesome tool, btw! Thank you for putting it
| together!
| gdsdfe wrote:
| Dreams are free like they say :)
| jonshariat wrote:
| Great tool but confused a bit. Is this a simulator or a
| calculator?
| naltroc wrote:
| I've been moonlighting for a few years on a digital product I'd
| like to sell. People often ask if I want to get funding, and I
| always say NO.
|
| Completely disregarding the ownership complications that arise,
| just a few clicks in to your webapp (super nice work btw) shows
| how much bloated knowledge you need.
|
| Does it make sense for early stage startups to hire a CFO to make
| sense of all these things? Absolutely not. So better make sure
| your angel package includes their budget. /s
|
| Funding isn't there for your best interest, it's there to make
| other people money. It lets you borrow time, and you still work
| for someone else.
|
| very well done site though, maybe i will be smart enough to use
| it some day.
| HDogueto wrote:
| Holly! loving the UI !!
| tills13 wrote:
| Cool and pretty but the dark beige text on the beige background
| is not sufficiently contrasty and difficult to read. Also, not
| sure if this is just a me issue but the text in general feels
| blurry.
| yreg wrote:
| While we are talking design: Since the site supports dark mode
| already, it could make use of prefers-color-scheme media query.
| tantalor wrote:
| Clicked a few buttons and got "You kept NaN% equity... You get
| $NaN"
|
| That's a surprising result, and not very user friendly.
|
| Some ideas to make it better:
|
| - make it impossible to get into that state
|
| - tell me what I did wrong so I can correct it
| Etheryte wrote:
| You get NaNthing.
| lettergram wrote:
| I love this, though few thoughts
|
| 1. Enable multiple branches to show different simulations
|
| 2. Allow me to save it and share it via a link
| krm01 wrote:
| Niceee. Reminded me of www.sillycovalley.com
| CafeRacer wrote:
| I lost :-D
| deadbabe wrote:
| This app needs a better zero state. It should start with a fully
| loaded company, maybe based on a real example, that you could
| edit and see the subtle differences. Then, when you're ready,
| start a new simulation from scratch.
| iamnafets wrote:
| Should add liquidation preferences and allow sales below the last
| priced round. Seem to be more common these days!
| iamandoni wrote:
| Wow what a great tool! Intuitive and clean interface with
| realistic default equity investments/option pools. Also I love to
| see more and more svelte projects popping up. Really exciting
| seeing its growing adoption :)
| reducesuffering wrote:
| Should put a button that plugs in default scenarios like YC,
| typical series A, B, etc.
| rogerthis wrote:
| Well, I can only add founders and get 100/#(founders). It looks
| bugged.
| 4d4m wrote:
| Consider an embeddable version of this for incubators to
| license!!
| bagels wrote:
| Was totally expecting this to be a snarky game.
| jmknoll wrote:
| Hahaha I'm glad I'm not the only one. I can't find it now, but
| I'm sure I've seen a snarky PM game here on HN before. Thought
| it might be the sequel
| von_lohengramm wrote:
| I was expecting something similar to PhD Simulator:
| https://research.wmz.ninja/projects/phd/index.html
| mikewarot wrote:
| I don't have a clue what a "safe" is... but I made 36 million
| dollars in 3 steps. I'm a happy camper.
| tptacek wrote:
| It's a standardized convertible note instrument, designed to
| replace convertible debt. Convertible notes are what you raise
| in a widely syndicated round before you have a firm valuation
| (ie, in your seed round). It's very easy to "sell" someone a
| convertible note, whereas an institutional priced round
| involves huge amounts of due diligence and legal fees.
| Convertible debt became the sort of default way seed rounds
| worked, but because they're technically debt they have maturity
| dates, which are logistical problems for founders; SAFE's just
| convert into equity directly.
|
| Broadly syndicated convertible note seed rounds are a
| relatively new innovation; what preceded them was "friends and
| family" rounds of $50-100k followed immediately by an A round,
| which was a galactic pain in the ass for founders trying to get
| their companies up on their legs. A seed lets you confirm your
| hypothesis about PMF without doing board meetings.
|
| The C.W. is that seed rounds today, no matter who's doing them,
| are done with SAFEs.
| nilsbunger wrote:
| Love the UI. Good educational tool for founders.
|
| If only building the company and going through all those funding
| rounds was as easy!
| happytiger wrote:
| This is a great start. I really enjoyed the UI. Definitely needs
| the educational hints for people who are newbies, but that is
| obvious and you probably already have it on your roadmap.
|
| All-in-all quite cool.
| samstave wrote:
| (I havent read the other comments yet - so forgive if this is a
| dupe request):
|
| May you please do the same from a hiring employee's perspective,
| in such a manner where, the Founding Folks can use this to
| understand their funding, then also understand what it means to
| bring on Founding Engineer, Founding Sales, etc... and then all
| the child departments and their impact in liquidity/stock/options
| RSIs etc?
|
| And then have an ELI35 print out for the Prospectives?
| risenshinetech wrote:
| This is a calculator, not a simulator. What exactly are you
| simulating? This takes a number of fixed inputs and produces a
| fixed output over some very coarse, manually controlled time
| steps.
|
| It's like saying using a calculator to add up the last few months
| of income/expenses is a "financial simulator".
| urbandw311er wrote:
| This seems like a rather pedantic objection in my opinion.
| "Simulation" here likely refers to a potential scenario such as
| a raise or an exit, or even an entire hypothetical venture.
| Solvency wrote:
| Not really pedantic to me. Am I the only one here old enough
| to remember "Drug Wars" on the Ti calculators? That was an
| actual sim game. This is not that.
| jimmydddd wrote:
| I'd say it's more like adding up future months' income/expenses
| where the future months' income/expenses can be changed based
| on different projected scenarios, thus simulating those
| different scanarios.
| joshelgar wrote:
| What was the point of you being pedantic? It simulates what
| happens in different scenarios.
| nodesocket wrote:
| I've been playing with some test numbers and end of the day if
| you start with a single founder and exit, the single founder take
| is significantly lowered by adding co-founders. I mean, makes
| sense the math, but still shocking the results.
|
| SAFE raise $750k, cap $4m
|
| Series A raise $8m, val $40m, options 10%, pro-rata
|
| Series B raise $20m, val $100m, options 10%, pro-rata
|
| Exit $300m
|
| Single founder keeps 49% of equity which is $147m. Three founders
| each keeps 16% and $49m.
| kaoutar2024 wrote:
| Good job
| withinboredom wrote:
| You need to add debt. For example, bridge loans. Or even "can we
| do this without selling equity"
| theyinwhy wrote:
| Founders keep playing the investor's game with investors when
| they should play the founder's game with investors.
| jagged-chisel wrote:
| It's about the power dynamics. Who comes calling first? The
| founder, needing money, or the investor wanting to invest?
|
| The first caller wants something. The other has it. The founder
| can only play that game if the investor calls first.
| gunapologist99 wrote:
| Please explain what this looks like?
| Fawlty wrote:
| It's cool that you've built it! It truly gets complicated,
| especially when at later stage you start getting venture debt
| (not safes), more demanding LiqPref and you're facing an exit at
| a price which is not ideal. Tbh I usually end up with bespoke
| excel files for each company to have a full understanding of
| waterfall for all parties and be able to simulate their payout
| and incentives at different exit price. But I'm sure even this
| tool can be helpful - if you need any help with that, lmk!
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