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Show HN: Startup funding simulator (fundingsimulator.com)

654 points by zikero ↗ HN
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!

167 comments

[ 3.4 ms ] story [ 427 ms ] thread
parkaboy
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
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.

parkaboy
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
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
Something like that would be awesome, thanks.
teaearlgraycold
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
wanted to make any simulation shareable by copying the url. but you're right, there has to be a better way ...
teaearlgraycold
Share link in the corner is the way. Or just do a “replace” instead of “push” (using NextJS terminology)
s4i
history.replaceState (instead of history.pushState) is your friend.
methodical
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
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
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
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
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.
sjwhevvvvvsj
I’ll keep that in mind. Thanks.

(Also, FWIW my revenue is diversified enough that I can weather some storms in one area or another.)

jacquesm
That last point is worth gold.
user_7832
I presume this would not really apply to "mature" hardware markets with a large number of companies already present and selling?
jacquesm
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
Thank you, do you have any recommendations for learning specifically for established markets? Eg books/podcasts etc
jacquesm
I'd seek out the founder of a company that did this and succeeded. Most don't!
user_7832
Thanks, appreciate it!
jacquesm
In a nutshell: it's war from day #1, the only advantages you have is that you are more nimble and have less burn so changes in conditions will work to the detriment of your opponent. But they likely have more capital and a solid revenue stream as well as more mindshare with their customers.

If you ever plan on going head to head with an incumbent I'd take a leaf out of the playbook of the flea, find a single customer somewhere that you are going to make totally happy whilst conserving those two advantages, keep your burn down and focus on the speed of your turnaround in the interaction with the customer. Then, when your customer runs out of ideas for you to add to the package generalize as much of it as possible and pull in customer #2. Never retire a feature that you built for someone else but do focus on the emerging 'core platform' of features, the overlap between your customers and move peripheral stuff into its own environment (in software: a separate repo with customer specific stuff).

With a more physical product it's going to be harder (but then, everything is harder with a physical product) so you'll need to either go slower or have deeper pockets.

lobsterthief
This also assumes you have the skills required to get your business to the point where it’s self-sustaining.
sjwhevvvvvsj
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.

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codegeek
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
> 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
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
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
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
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 naïve 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
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
"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
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
> 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
It is not easy to hire/consult that level of person though. They are too busy being VCs
mlhpdx
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.
danjac
Depends on your circle. Most of my peers have families and mortgages, and don't have inherited wealth or sufficient savings. They are fiscally responsible but bootstrapping a company requires more resources than just being sensible with your money.
mlhpdx
Absolutely right. My point is just that it isn’t that people couldn’t, but that they can’t. The former meaning that people generally do have the needed skills, the latter meaning they don’t have the opportunity.
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echelon
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
I sold my biz for 16B then went back and deleted the funding rounds and founders. I made 16B. I like this.
zikero
pre-tax though
baq
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
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.

quickthrower2
Cashflow management, but that is mostly up to you. They can’t stop you living beyond your means just tell you what those means are. Another example (in countries that have it) is GST/VAT that you collect and pay the government later assuming you didn’t spend it!
sdflhasjd
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
Why don't we use this hack IRL?
sdflhasjd
Probably the annoying taxman who takes 20% of your $infinity, which just so happens to also be $infinity.
gtirloni
Your infinity is larger though so it's all good.
blackmesaind
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).
lagadu
No, not all infinites are the same. For example uncountable infinites are all larger than countable ones.
blackmesaind
Bah, you could never convince me aleph numbers are real!
Aeolun
I think if someone takes 20% of your infinity you are still left with infinity?
latency-guy2
To be accurate, you're left with undefined. But not really, the taxer actually controls infinite, person paying the tax has to figure out how to divide their infinite up.
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Draiken
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
Agreed. Adding the employee point of view would make this tool an excellent education piece. It’s always a struggle to explain.
leetrout
Or, no snark, open their eyes to how little their options are worth.
mdekkers
I never count options as renumeration. Startups and scaleups may as well promise to pay me with lottery tickets. Cash please, thank you. If you want to talk about using equity to pay me, please come with real shares, and a say in how the business is run, at least in the areas where I have experience and expertise.
amne
You only accept equity as the only pay if you believe in your friend's product and can take the hit when it doesn't work out. Everywhere else I've seen actual cash + options which is a way of saying "we'll pay you for a while and if this works out your options will be your reward for sticking around".
Draiken
> we'll pay you for a while and if this works out your options will be your reward for sticking around

If it was at least as you describe, that'd be one thing, but not even that is guaranteed. At the time an exit event actually does happen, you might've been diluted out of existence.

I've personally been fucked out of shares once already. It's much, much worse than a lottery ticket. It's basically a dream.

cnity
I somehow was _immensely lucky_ to have joined a company that IPO'd shortly after joining. As a mid level engineer I sold my shares for literally $140,000 after tax, in total (as in, from selling all of my vested shares as they vested) despite not staying for all vesting rounds.

This being despite receiving a salary of only around $80-90k. I've never once considered shares to be something to depend on, but man can they be life-changing if you're in the right place at the right time.

dmurray
Are there any companies that share with the employees enough information to run this simulator?

My standard experience has been

-"This offer includes X,000 share/option units"

-"great, how much is that worth in dollars?"

-"well, we can't tell you, but there are Y00,000 shares in total, and the last investor paid $Z million for W% of the company".

"OK, that's very useful. If I assume my shares are as good as the investor's shares, I can estimate my shares' market value. Did the investor get anything else of economic value for his investment? A liquidation preference? Right to invest in future rounds? A board seat? Sweetheart deals with his favourite companies? "

- "Let me check that with Finance"... ... ... "I'm sorry but I can't tell you that"

- "OK, I understand that's confidential. Can I at least get the same deal as him? I'll trust you to give me my extra benefits when they accrue, and I waive the board seat and the backhand deals"

- "Absolutely not."

- "Well then, it's very hard for me to put a value on these shares/ options. Even though I'm willing to take some level of risk in my compensation, and value these close to market value, you won't give me enough information to let me value them at anything other than $0"

- "I've checked with $BIGWIG and actually we can make an exception in this case: we can offer you (X + 1),000 shares/ options. How does that sound? "

- "..."

not_the_fda
shares/options are worth the same as Shrute bucks.
Sohcahtoa82
It's confusing as hell.

I know what options are. I trade options on the public market frequently and make some beer money.

But when it comes to my stock options in the private startup I work at, I'm lost, mainly because the share price is shown as one of two numbers: Fair Market Value, and Issue Price.

Let's say I joined after a funding round where the company earned a $5B valuation. I'm given the option to buy 10,000 shares at $4/share, which is the "Fair Market Value" price. But the investors paid $16/share. How much are my shares actually worth? $4 or $16? I THINK the answer is actually "neither", since my shares have no liquidity without using a private equity trading firm like Forge. But is the $5B valuation determined from the FMV or the issue price?

But ignoring that, let's say we IPO with a $25B valuation. Ignoring dilution, if my shares were worth $4 before, they're now worth $20/share, and I've profited $160K. But if my shares were actually worth $16, they're now worth $80, for a profit of $800,000.

Which is it really?

eigenvalue
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
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
jacobsenscott
The complications are intentional. It doesn't need to be this way, but the job of a VC is to screw workers out of as much money as possible, as quickly as possible. Complex deals are one tool in the toolbox.
nahsra
This was certainly true in the past from my understanding of the history before my time.

Most terms are pretty standard now. And most of them have good reasons for existing — usually to align the founders and investors. Just because a term is complex and could benefit the investor doesn’t mean it’s meant to mislead.

But, I’m interested in some examples that might shake my opinion about up!

siegel
I wouldn't say the complications themselves are intentional. But take a look at a typical Series A. There are 5 core documents. Dozens and dozens of pages of legalese. I'm a lawyer and understand them. But most founders don't.

What's interesting is that virtually every word in those docs is there to protect the investors, most at the expense of the founders and other existing shareholders.

Ok, so maybe that sounds obvious. Why would it be otherwise?

Well, take a look at the initial docs when a company is founded. The "market" is for those docs to be as simple as humanly possible. A certificate of incorporation is a page or so. No protections at all for the founders in there, most often.

But when you bring in investors, the market is to lard up that same document with investor protections and no protections for founders.

That's how founders get screwed. It's not that the complications are there to screw founders. It's that the standard forms are built with one party's interests in mind.

AznHisoka
How did you decide on the “default” valuation based on funding? Is it based on historical numbers?
mikikian
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
working on this one! thanks
echelon
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!

hamburglar
An awesome addition to this would be to illustrate the effect of investor liquidation preferences during an exit. A graph of sale price vs your take would be really helpful for this since it’s nonlinear.

UI suggestion: allow click-drag on percentage boxes. I was tweaking percentages between 4 founders in order to come up with certain amounts post-round and it was a bit trial and error. On mobile it would have been tons easier if I could just nudge the values up and down rather than having to type them all in again.

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gdsdfe
Dreams are free like they say :)
jonshariat
Great tool but confused a bit. Is this a simulator or a calculator?
naltroc
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.

tills13
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
While we are talking design: Since the site supports dark mode already, it could make use of prefers-color-scheme media query.
tantalor
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

lettergram
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
Niceee. Reminded me of www.sillycovalley.com
deadbabe
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
Should add liquidation preferences and allow sales below the last priced round. Seem to be more common these days!