ARJ – Personal Site

Abdulrahman Jami

Startup Hustle (1/2)

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9 min read

Practical Founder’s Toolkit!

Hello, fellow founder/hustler 🏴‍☠️

Let’s clarify things from the beginning: this article is about getting practical, not teaching you something new. So, let’s get practical.

From my personal experiences in building startups with my technical background, I faced a serious challenge. What the heck do equity, valuation, and all of those financial nonsense terms and concepts mean? All I wanted was just to build something, make money out of it (tons of money), and then secure my family’s future from the beach.

So, I am sharing the knowledge I have gained from reading, practicing, and making mistakes with you, my friend. Enjoy.

In this first part -1 out of 2- I want to share the tool you always wanted to build but never had time for. This toolkit is designed to be practical and user-friendly, giving you no excuse not to take control of your startup’s equity and valuation.

After you have a promising idea, you want to make it a business to get rich (that’s the simplest definition for a startup). But you need more people with you (co-founders, team, and maybe advisors), and you need money to start or boost your progress (funding). That’s when it hits you: What should you give those co-founders, team members, and investors in return? When? And How much?

– The “Why” is simple; they are helping you!

I build this toolkit to help you answer those questions and more. So, let’s break it down and start diving into it. But remember, This exercise is challenging but essential for your future, so stay strong and keep pushing forward!

What’s in the Founder’s Toolkit?

1. The “Home” page

Consider this sheet as the main page to guide you as you navigate through the entire toolkit.

2. The Equity Splitter

This section has two sheets. 

The first one (🧮 1. Equity Setup)

Contains 12 calculation methods to help you split and divide your startup’s equity between you and your co-founders. You may do one or more of those methods, but it is highly recommended to do them all to understand more about each other; first, let each founder do it alone, then you all should sit together to do the final version, seeing different results and perspectives is one of the hidden objectives here, “arguing” now is much better than later. Being a co-founder is like being married; this is a long relationship, and it requires “hands-on,” transparency, and 24/7 care about your baby, “the startup”. Plus, doing this exercise with multiple options and methods ensures peace of mind and builds an intense argument with a pinch of “science”! In reality, startups have no right or wrong, and everything is up for challenge and negotiation. Just stay far away from a 50/50 equity split and five or more co-founders.

The second one (📕 2. Equity Summary)

Summarize the previous 12 equity-splitting methods. Here, you have to make a final decision and set the final ownership equity percentage for each co-founder in the startup to recognize their effort and contribution in a fair and square manner.

Remember: Fairness is key. Don’t be greedy, yet be reasonable. Those co-founders are sharing your vision now and helping you build your dream. Recognizing their effort and contribution will promote a healthy culture and motivate the team.

3. The Business Evaluator

This section has two sheets. 

The first one (💰 3. Valuation Methods)

contains 14 simplified calculation methods to help you have a solid evaluation of your startup’s true value. You may do one or more of these methods, but it is highly recommended to do them all to understand more about how things work in this realm; seeing different results and perspectives is one of the hidden objectives here; “envisioning” now is healthier to get ready. Having a logical valuation for your startup gives you a reasonable buffer in negotiation with investors and makes you better able to convince team members. Plus, doing this exercise with multiple options and methods ensures peace of mind and builds an intense argument with a pinch of “science”! In reality, startups have no right or wrong; everything is up for challenge and negotiation. Just stay far away from a crazy-high evaluation with no strong and valid justification.

The second one (📗 4. Valuation Summary)

Summarizes the 14 valuation methods. Here, you have to make a final decision and set the final evaluation for your startup to defend it better and with reasoning.

Remember: Over- and under-evaluation are both very bad for your startup. A reasonable valuation gives you and your team a sense of security and confidence in your startup’s worth.

4. The Cap Table Wizard

This section has two sheets. 

The first one (📑 5. Cap Table & Scenarios)

Contains a 2+6 investment rounds simulator to help you understand and see how things will grow (your shares’ value), stay the same (number of shares), and how things will get decreased and diluted (your precious equity of your company) after every round. It is highly recommended that you do all the rounds; seeing the growing value of your company is a good motivator for you and the team, and it shows you “the cash” you will get in major liquidation events (Yes, no one can exit at any time they desire, hence the name “venture”). Plus, doing this exercise with multiple rounds ensures your readiness to negotiate with investors; just avoid doing things that repel them. The Cap Table is the fundamental record of all individuals/entities who own equity in your company. It’s essential to add them and give them fair equity.

The second one (📘 6. Cap Table & Exit Summary)

Summarizes everything and gives you the final picture. Here, you see how a small dream turns out to be a huge one for everybody who bet on it and invested in it.

Remember: It is essential to know how much you are raising for the current round and the following one; this is a fast ROI projection for your current investors. Plus, It is recommended to allocat 10% for the ESOP and 3% for the ASP.

5. The Shares Allocation

This section has two sheets. 

The first one (🚩 7. Founders Shares Allocation)

Has a vesting table dedicated to you and your co-founders. This table is very important and helps you ditch cases like a co-founder leaving early or a co-founder wanting to know how many shares he owns as of today. Yes, even if you have 1 million shares of your startup, you still don’t own them all today! They call that allocating 1 million shares, and you have to vest them for 3 or 4 years; every month (vesting unit), you get some, and surprise, surprise, this “vesting” starts after you complete a whole year; it’s called a cliff!

The second one (🎁 8. Compensation Planning)

Has yet another vesting table. This one is also known as an ESOP (employee stock options plan), and I merged it with the ASP (advisor stock plan). This table will help you allocate the fair shares for each and make it easy to convince them to join you after they see their shares’ value after the vesting. Many face the annoying question, “How many shares should I give?” This sheet has a small matrix that helps you answer that, too.

6. The Dictionary

The sheet (📖 9. Glossary)

Contains a list of terms you will face in this toolkit or during your journey. At least look at it.

How to use the Founder’s Toolkit?

I tried my best to simplify this toolkit. For the best result, please do the following:

  1. Make a copy of it first.
  2. Always discover the sheet, go right and left, up and down, and read what’s written.
  3. Edit only the yellow cells.
  4. Orange cells should be left as is, but edit them if necessary.
  5. Things are connected, so better follow the flow.
  6. Have you found something wrong? Bingo. Comment it in the original file, and I’ll fix it ASAP.
  7. If you have feedback or comments, I’d love to hear them.

Let’s call it a day.

It’s getting late, and you have work to do and business to run.

Listen, my friend. The journey is tough, and this is real. You will cry, laugh, bleed, and celebrate, so keep pushing forward! To succeed, you are not supposed to follow anyone’s opinions or plans; you should just focus and keep moving.

This article is my part 1 out of 2 to give the community back. You must do the exercise, at least as a test of your seriousness about entering this dark world. It should take you 2 or 3 days maximum to finish it all and read the related references inside it.

Summary

First, thank you for reading my first article and giving me this time.

Secondly, Using this toolkit, you will start by determining the ownership distribution among the co-founders of your startup. Then, you will evaluate your company’s value, simulate the impact of investors’ involvement, and finally, determine how to allocate shares to the founders, employees, and advisors. In the end, this is an important exercise, but it remains an informal exercise, so you need to document everything formally after each step, and I recommend that you use tools known for this topic, such as

And at last, here you go …

The Founder’s Toolkit

P.S. The file is 100% safe, but some links in sheet #2 (Equity Setup) are triggering Google’s “nose”!

“Stay strong, don’t settle, & always hustle!”

~ Abdulrahman Jami

BTW, I wouldn’t say no to a free coffee 😋

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