WELCOME TO ISSUE NO #09

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📆 Today’s Rundown

Happy Saturday! This week I’ve compiled some amazing resources that will definitely impress you.

TL;DR

• 💰 SAFEs and Pre vs Post Money Valuations

• 💻 Finance Tech Stack

• 📊 8 Excel Skills for FP&A Professionals

• I’ve partnered with my friend David Fortin to bring you an incredible opportunity to excel your career & your business with AI. More details below.

• My friend Josh Aharonoff launched his new Excel Plugin - Model Wiz and finance pro’s & founders are amazed. So if you’re looking to elevate your career or business, check it out below.

👇️ Watch: The Changing Financial Dynamics of B2B SaaS and Tech Companies by Chris

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SAFEs and Pre vs Post Money Valuations 

TL;DR:

SAFEs (Simple Agreements for Future Equity): A creative alternative to priced equity rounds or debt.

Key Differences from Convertible Notes:

• Not debt

• Do not carry interest

• No maturity date

Conversion to Equity: SAFEs convert to equity when the company raises a priced round in the future or is sold.

Valuations:

• Pre-Money Valuation: The company’s valuation before cash is injected.

• Post-Money Valuation: The pre-money valuation plus the cash raised.

What’s a SAFE?

The Simple Agreement for Future Equity (SAFE) was invented by Y Combinator in 2013. It allows initial investors to fund a promising business concept without the need to determine a valuation right away.

Key Points about SAFEs:

• Invented by Y Combinator: Created to simplify early-stage fundraising.

• Avoids Immediate Valuation: It’s challenging to price shares for an idea still on paper.

• Neither Debt nor Equity: A SAFE doesn’t accrue interest and has no maturity date.

• Conversion to Equity: Converts into equity when the company raises a priced round or gets acquired.

On the surface, SAFEs are, as their name suggests, simple. However, financial analysts can add complexity with various features and terms. We’ll explore some of these nuances later.

But before we go any further, what’s the difference between pre and post money?

Pre Money vs Post Money

Pre-money valuation is the hypothetical valuation that founders and investors agree upon before the investment is made. It represents the company’s worth before any new capital is added.

Post-money valuation is the company’s valuation after the investment terms are agreed upon and the capital is received. This valuation includes the latest capital injection, making the company theoretically worth more due to the added funds on its balance sheet (read: bank).

Post Money = Pre Money Valuation + Investment

Example:

• Acme Co. is raising $5M on a $30M Pre Money

• Post Money = $30M + $5M = $35M

With this foundation, let's explore some SAFE scenarios and understand how they function in different contexts.

Valuation Caps

A valuation cap sets a ceiling on the price at which a SAFE will convert to stock ownership in the future. It is the maximum valuation at which an investor can convert a SAFE into equity, ensuring that the investor's conversion price is capped once shares are issued.

Why Are Valuation Caps Important?

Valuation caps protect investors by guaranteeing a minimum ownership percentage, even if the company’s valuation exceeds the cap during subsequent funding rounds. Without a cap, an investor’s stake could be significantly diluted if the company's value increases rapidly.

Let’s go through an example.

Investor A invests $200K on a $4M post-money cap.

• Investment: $200K

• Post-Money Cap: $4M

• Guaranteed Ownership: 200𝐾 / 4𝑀 = 5%

This means Investor A is guaranteed at least 5% ownership of the company, regardless of the company’s valuation in future rounds.

What Happens in Future Rounds?

Six months later, the company raises funds at a $6M post-money valuation. Despite the higher valuation, Investor A’s position is still 5%. Thus, their $200K investment converts to $300K worth of equity, reflecting the 5% ownership in the $6M company.

Sophisticated investors typically insist on a valuation cap to protect their investment. Without a cap, their investment could be diluted if the company's valuation significantly increases.

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8 Excel Skills for FP&A Professionals

Mastering Excel is crucial for any FP&A professional. Here’s a breakdown of the must-know features that can transform your financial analysis and planning.

1️⃣ VLOOKUP

Why it's crucial: Quickly retrieving data from massive spreadsheets saves time and reduces errors. It's a classic for a reason!

2️⃣ PivotTables

Think of it as a treasure map: PivotTables help you navigate through numbers and find patterns that inform critical business decisions.

3️⃣ Named Ranges

Keep it clean: Named ranges make your formulas easy to read and maintain, keeping your mind sane and your spreadsheets organized.

4️⃣ SUMIFS

Multi-condition summation: This powerhouse function acts like a personal assistant, sifting through the data for you with ease.

5️⃣ Conditional Formatting

Visualize data trends: Make your data come alive with Conditional Formatting. Spot trends and outliers at a glance without digging into the details.

6️⃣ PivotCharts

Data storytelling: PivotCharts turn data into dialogue, essential for impactful presentations and conveying the story behind the numbers.

7️⃣ XLOOKUP

The new star: Embrace XLOOKUP for its flexibility and improved functionality. Think of it as the latest model with all the upgrades compared to VLOOKUP.

8️⃣ Data Validation

Prevention over cure: Data Validation helps you avoid data-entry errors, a crucial aspect of maintaining accuracy in financial analysis.

Pro Tip: Master these Excel features one at a time, applying each to real scenarios. This method ensures the skills stick and helps you become the Excel MVP your team relies on.

If you’re looking to elevate your career or your business, check out Excel Plugin - Model Wiz by Josh.

These are the templates that made Josh skyrocket his career & his business, too.

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