Introduction

The Next Round Planner allows you to model different financing scenarios based on the potential parameters of your next investment round. Here, you can enter new stock classes and investors to visualize post-round ownership. The information entered on this screen can be used to generate a Pro Forma Cap Table as well. This article summarizes the optionality on this screen, and the implications of each selection.

Using the Next Round Planner

To get started, navigate to the Equity & Financing module on the Company Workspace and click on Next Round Planner.

Adding a new stock class

The first step is to add the new stock class. To do this, click Add Stock Class and add the pertinent information for the new class of stock. See this blog post to learn more about how the cost per share of a new stock class is calculated.

You can specify the amount you are hoping to raise and the pre-money valuation for the company. You may also want to provide the liquidation preference for this security, the liquidation multiplier, and the anti-dilution rights for that class. Further, you can override the default values if needed to match your financing’s unique situation (e.g., if your company is expanding the number of authorized shares in that class as part of the new round, if the authorized shares count in your account is not fully up to date).

The pie charts at the top of the page will update as you enter new information, to reflect the proposed post-financing capitalization of the company and resulting dilution impact to key stakeholders.

After you create your new stock class, you can hover over the tooltip next to the Class Name to see the price per share and the total authorized number of shares you'll need for that round.

Information on liquidation preferences

Liquidation preferences determine how preferred stock investors get paid when your company exits. These preferences are generally the amount invested times the liquidation multiplier.

There are three different options when it comes to setting the liquidation preferences for a stock class in the Next Round Planner: full participating preferred, non-participating preferred, and participating preferred with a cap.

Fully participating stock means that holders of the new preferred stock class get their liquidation preference (the payments that are paid to them before anything is available for distribution to common stockholders) and then they also get to share any of the proceeds that are left over, with the common stockholders.
Participating preferred with a cap means that holders of the new stock class are paid their liquidation preference preferentially (meaning before common stockholders are paid) and then they also get to share any of the proceeds that are left over, with the common stockholders, until an aggregate of X times the original investment is reached.
Non-participating preferred stock means that the holders of the new stock class only get paid their preferential amounts or decide as a class to convert to common stock; they don’t get to take their preference and participate. Depending on the exit amount they will typically choose the option that gives the larger payout.

Information about anti-dilution optionality

Dilution refers to the decrease of a shareholder’s ownership percentage in a company due to an increase in the number of outstanding shares. Essentially, this increase in shares automatically reduces the shareholder's ownership in the company.

Anti-dilution provisions are typically negotiated by investors as a level of protection against dilution in a company should there be a down round (i.e., the price of stock in a subsequent financing is lower than the price of the prior round's stock). There are three different options here: full ratchet, no price based anti-dilution, and weighted average anti-dilution.

Full ratchet anti-dilution means that the conversion price of existing preferred stock is reduced to the price at which the new shares are issued in the subsequent round. In other words, if the Series A investor purchased shares at $1 each and the Series B round prices each share at $0.5, the Series A shares will convert to $0.5 per share (or 2 common shares per each Series A share).
No price-based anti-dilution means that the preferred investor will not be protected against a down round any more than the common stockholders. While many common stockholders think that this is the fairest option, many preferred investors will not agree to take the down round risk without any anti-dilution protection.
Weighted average anti-dilution is defined in the NVCA term sheet by a formula, described in our blog post here. There are three methodologies when calculating the weighted average anti-dilution formula, and they can be differentiated by how they calculate the number of shares of common stock deemed outstanding before new issuance.
- Narrow-based includes only currently outstanding (not fully diluted) securities.
- Broad-based includes the currently outstanding securities and granted options.
- Broadest-based includes currently outstanding securities, granted options, and the ungranted pool.

Stock class settings

Pro rata rights provide investors the option to participate proportionately in subsequent financings, so as to maintain their ownership in the company and not be diluted. If anti-dilution provisions can protect investors against a potential down round, pro rata rights can protect investors in the event that the company does well and continues to raise money.

While pro rata rights are a simpler concept to comprehend, the different methods of calculating these rights can be more complex. The platform offers six ways to calculate these rights and, while the formula is the same, the number of shares included in the pro rata calculation (to determine ownership) differs. Click Settings to view and change these settings.

Modifying the liquidation stack

Clicking on the Modify Liquidation Stack button will allow you to reorder the stock classes to identify the order in which each class of securities is paid out on an exit. See our blog post for more information about liquidation preferences.

Modifying the employee option pool

In the Next Round Planner, the current number of shares in the employee option pool and the number of shares in the pool after the financing will be displayed side-by-side for comparison. In this view, the option pool will be sliced into the utilized pool, currently available pool, and any additional shares added due to the new financing.

Clicking the Modify Employee Options Pool button allows you to add new shares to the pool. You can provide a number of additional shares, a target total percentage (e.g. 10% of the company's fully diluted shares), or a target unallocated total percentage.

The table will update to include the new shares in the calculations.

Debt & Alternatives

If your company has issued a SAFE or Bridge Note (also called a Convertible Note), you will see them listed in the Debt & Alternatives section of the Next Round Planner. Because convertible securities are designed to convert to Preferred equity in a future financing, keeping track of these entries may be important when examining the terms of a proposed deal.

Click on Add Convertible to add new or potential convertible instruments that are not yet on your cap table.

Check the Converts box to indicate if the convertible instrument will convert in the next round. You can also check the box in the table header to indicate that all convertible instruments will convert.

The platform will automatically calculate the number of converted shares based on the details of the convertible instrument. For Bridge Notes, the platform can also calculate the interest accrued. Click the Edit icon to define a custom conversion where you can enter the number of converted shares and add interest.

Adding investors & unallocated investment

After you have set up your new stock class and specified the terms of your financing, you can add investors to your planned round. Click Add Investor to name the new investors.

Click the Edit icon for any existing investors to indicate if they will participate in the new round. Select either a pro-rata investment or to manually enter the new investment amounts.

When percentages are displayed on the page, they are calculated against the fully diluted common stock equivalent (CSE), which includes the entire option pool (granted and ungranted options).

This is an example of how your list of investors will change once you have added new investors and/or have added new investment amounts.

In this example the round has not yet been fully committed since there is still about $1.2M left to be allocated to investors.

Exporting the pro forma cap table

Once you have added all of the data to your Next Round Planner, you can download your pro forma cap table. Click the Export Pro Forma Cap Table button and the report will download in an Excel format.

If you're seeing more shadow classes of stock than you expected when you export your Pro Forma Cap Table, it could be because you have multiple SAFEs with slightly different terms, so the system will group them into classes that are exactly the same. If the Valuation Cap or Conversion Discount are different, the platform will create a different class for each variation. To check this, you can review the SAFEs in the data room to see if there are any discrepancies.

The Next Round Planner is merely a tool and is not a definitive representation of how the company’s ownership will change as a result of an equity financing. This tool does not replace and is not a substitute for legal advice, and you remain responsible for calculating and validating the outcomes associated with an equity financing.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity Private Shares LLC provides cap table management and other administrative services to private companies and their equity compensation plans.

Screenshots are for illustrative purposes only.

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