Founder Toolkit

A look into our investment process and what raising capital involves. Use this information to gauge whether your company is ready to fundraise and to understand the preparation the process requires.

Founder Toolkit
The Process What We Look For Investment Structure Due Diligence Key Terms

The Process

Step 1

Apply

Submit your application to the Catalyst by Beemok competition.

Step 2

Review

We'll evaluate your company, team, and market opportunity. This includes verifying your business is headquartered in Charleston, Berkeley, or Dorchester County.

Step 3

Finalist Selection

Applications go through multiple rounds of evaluation. Depending on how far an application advances, we may ask for additional legal, financial, or operational information to help us evaluate your business. Finalists will be invited to the Catalyst event on November 14th.

Step 4

Event

Founders pitch live to investors at the Catalyst event on November 14th. If you are selected to receive an investment, you will receive a Letter of Intent (LOI).

Step 5

Final Due Diligence

If you receive an LOI, we'll complete a full due diligence review of your company's legal, financial, and operational foundation.

Step 6

Term Sheet & Closing

Once diligence is complete, we'll present a term sheet outlining the investment terms. Following alignment of terms, we will move to closing documents and funding.

What We Look For

Entity requirements

Your business must be headquartered in Charleston, Berkeley, or Dorchester County. To receive an investment with our preferred investment structure, whether through a SAFE or a priced equity round, your company will need to be a Delaware C Corporation registered to do business in South Carolina. If you're currently operating as an LLC or under another structure, that's fine to apply; we'll work with you on the conversion before closing. Understand your current legal structure now so you know what to expect.

Preferred Investment Structure

SAFE (Simple Agreement for Future Equity): Definition and Relevant Terms

A SAFE is a common instrument for early-stage startup investing. It’s an agreement that gives the investor the right to receive shares of the company’s preferred stock when a priced equity round happens. No shares are issued at the time the SAFE is issued, and unlike loans, SAFEs do not accrue interest, or have a maturity date. We use a version of the Post-Money SAFE developed by Y Combinator.

Valuation Cap

The maximum company valuation used for one of the methods of calculating the price at which the SAFE will convert into the Company’s preferred stock.

Discount Rate

A percentage discount on the preferred stock price per share compared to what new investors pay in the next priced equity round. The SAFE converts into preferred stock based on either the Valuation Cap or the Discount Rate—whichever method gives the SAFE investor more shares.

Equity Financing

When the company raises a priced equity round and sells preferred stock, the SAFE automatically converts into preferred stock that has the same rights, privileges, and preferences as the preferred stock the new investors receive in the next priced equity round.

Liquidity Event

If the company is acquired or goes public before the SAFE converts, the investor receives either their original investment back or a payment in the amount equal to what they would have received if the SAFE had converted into shares, whichever is greater.

Priced Equity Round: Definition and Relevant Terms

A priced equity round, or preferred stock financing, is a method of raising capital where the company issues and sells shares of preferred stock at a specific price. Unlike a SAFE, a priced round establishes a definitive valuation of the company and involves more detailed agreements setting forth the rights of the investors and the founders. We use a set of documents based on the forms developed by the National Venture Capital Association.

Preferred Stock

A class of stock with special rights that common stock doesn’t have, such as a liquidation preference, anti-dilution protection, and approval rights on certain key company decisions. Preferred stock can also be converted into common stock at the request of the preferred stockholders. The Conversion Ratio, or the ratio at which the preferred stock can be converted into common stock, is initially set at 1:1.

Liquidation Preference

As downside protection, preferred stockholders have the right to get paid before common stockholders if the company is sold. A standard nonparticipating 1x preference means that preferred stockholders will either take their liquidation preference and get back at least what they put in before any payments are made to common stockholders or, if the proceeds from the sale would be greater than their liquidation preference, give up their liquidation preference and share in the proceeds of the sale with the common stockholders.

Anti-Dilution Protection

If the company later issues stock at a lower price (a "down round"), the Conversion Ratio automatically adjusts so that earlier shares of preferred stock become convertible for additional shares of common stock. The most common method for calculating the adjustment to the conversion ratio is the "broad-based weighted average" method.

Board of Directors

The group of individuals responsible for overseeing the company's strategy and major decisions, with composition typically negotiated as part of the priced round.

Protective Provisions

Specific company actions that require approval of the preferred stockholders, such as changing the rights of stock, authorizing new classes of stock, taking on significant debt, or entering into major transactions.

Information Rights

Major investors receive information rights, including the right to periodically receive the company’s financial statements and capitalization information, as well as the company's annual budget and business plan.

Due Diligence

If your application advances, we'll review your company's legal, financial, and operational foundation. We'll likely request the items below. Not all of them will apply to every company.

Corporate Formation & Governance

  • Certificate of Incorporation
  • Action of Sole Incorporator
  • Bylaws
  • Board and Stockholder Consents and Minutes

Equity & Capitalization

  • Capitalization Table (fully-diluted)
  • Founder Stock Purchase Agreements and 83(b) Elections
  • Equity Incentive Plan and Option Agreements
  • 409A Valuation Reports
  • Other equity agreements/convertible securities (SAFEs, convertible notes, etc.)

Intellectual Property

  • CIIAAs (Confidential Information and Invention Assignment Agreements) for all employees and contractors
  • Intellectual Property Licenses
  • Patent, Trademark, and Copyright Registrations

Legal & Regulatory

  • Pending or threatened litigation
  • Consent decrees, injunctions, or settlements
  • Securities compliance documentation

Employees, Officers & Contractors

  • Employee list
  • Officers and Directors list
  • Employment agreements and offer letters
  • Outstanding liabilities (accrued salary, PTO, etc.)

Financial

  • Financial statements (year-end and monthly)
  • Annual operating plan / budget
  • 409A Valuations
  • Outstanding liabilities over $5,000

Debt & Other Agreements

  • Debt instruments (loans, credit, leases)
  • Material contracts
  • Customer and supplier contracts

Key Terms Glossary

Cap Table

Short for "capitalization table." A spreadsheet that shows the equity ownership breakdown of a company, including shares held by founders, employees, and investors.

Common Stock

The basic class of stock held by founders and employees. Common stockholders are last in line during a liquidation but benefit the most from a successful exit.

Dilution

The reduction in an existing stockholder’s ownership percentage of the company when new shares are issued. New equity investment rounds dilute existing stockholders to some degree.

Option Pool

A reserve of shares set aside for future issuance to employees, advisors, and consultants as equity compensation. Investors typically require that reserve to be a number of shares equal to 10–15% of the company’s fully diluted shares.

Vesting

The process by which shares or options are earned over time. Standard vesting is four years with a one-year "cliff": nothing vests until the first anniversary, at which time 25% vests at once, and then the remainder vests monthly over three years.

83(b) Election

A tax filing that allows founders to be taxed on equity that is subject to vesting, such as restricted stock, at the time of purchase rather than at the time it vests. Must be filed with the IRS within 30 days of purchase and cannot be filed late.

409A Valuation

An independent appraisal of a private company's fair market value, required for setting the exercise price of stock options.

Term Sheet

A non-binding document that outlines the key financial and governance terms of a proposed investment.