This Small Business Innovation Research (SBIR) Phase I project will research and develop a software system to model the complex and varied rights structures used in private company finance. This system will show the behavior (such as the economic payouts to each stakeholder) of capital structures under various future funding and exit event scenarios. Sophisticated investors employ various securities in complex strategies, depending on the specific company, to balance exposures and maximize overall investment returns. Typically, these strategies are devised using custom built spreadsheet models that are opaque, analytically limited, and prone to undetected errors. When negotiating investment terms, this status quo puts company stakeholders who are less experienced with capital structuring strategies at a serious disadvantage.
This innovation research effort will build the mathematical core of a platform that will serve entrepreneurs, students, and investors to explore and build capital structures in a more instructive, transparent, and powerful way. The core platform will grow into a commercial subscription web application. Ultimately, a mature and widely-used platform for capital structuring will enable the industry to reduce unnecessary and stylistic complexity from capital structures, which in addition to obvious benefits will set the stage for new models of trade and exchange of private company ownership to emerge.
