Final boss: The big decision
Dilution math
1Owner Shares2Kai 450,0003Remy 450,0004Option pool 100,0005Total 1,000,000
An investor buys 250,000 new shares. What percent does Kai own afterwards?
- 36%
- 45%
- 20%
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36%
The total becomes 1,250,000 shares. Kai still has 450,000, and 450,000 / 1,250,000 = 36%. Same shares, smaller percent: that is dilution.
Valuation math
1Revenue each month $5,0002Comparable studios 3x yearly revenue
Using the comps, what valuation would a buyer start from?
- $180,000
- $15,000
- $60,000
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$180,000
Yearly revenue is $5,000 x 12 = $60,000, and 3 x $60,000 = $180,000. $15,000 forgets to turn monthly revenue into yearly, and $60,000 is just the revenue. It is a starting point for the negotiation, not a fact.
Control check
Board: 1 founder seat, 2 investor seats.
Kai and Remy own 80% of the shares. Why should this line still worry them?
- The investor would control the board, which makes big decisions and can replace the CEO
- It means the investor owns 80% of the games
- It is fine, because owning most shares always means control
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The investor would control the board, which makes big decisions and can replace the CEO
Shares and board seats are separate kinds of power. A board majority can steer the studio and replace its leaders, so founders try to keep most of the seats.
Runway check
1Cash in the bank today $24,0002Spending each month $6,0003Income each month $2,000
How many months of runway does the studio have?
- 4 months
- 6 months
- 12 months
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6 months
The burn rate is $6,000 - $2,000 = $4,000 a month, and $24,000 / $4,000 = 6 months. Forgetting the income gives 4 months.
Term sheet math
Amount: $300,000. Pre-money valuation: $1,200,000.
What percent of the studio will the investor own?
- 25%
- 20%
- 30%
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20%
Post-money is $1,200,000 + $300,000 = $1,500,000, and $300,000 / $1,500,000 = 20%. Dividing by the pre-money would wrongly give 25%.
Spot the spin
Traction: 80,000 players love Hyper Shards! Next year: 2 million!
Analytics show 80,000 installs, 9,000 monthly players and 10% Day 30 retention. What should the slide say?
- The real numbers with their real names, and the 2 million clearly labelled as a forecast
- Keep it, because investors expect big claims
- Remove all numbers so investors focus on the art
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The real numbers with their real names, and the 2 million clearly labelled as a forecast
Installs are not players, and a hope is not a fact. Investors check everything in due diligence, so honest numbers plus a labelled forecast build trust, and spin destroys it.
Quick check
An investor buys equity in the studio. A bank lends the studio the same amount. What is the key difference?
- The loan must be repaid with interest, while equity is never repaid but gives the investor part of the studio
- Both must be repaid next year
- Equity is repaid with interest, while the loan gives the bank shares
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The loan must be repaid with interest, while equity is never repaid but gives the investor part of the studio
Debt keeps ownership but must be repaid even if the game flops. Equity costs a slice of the studio, and the investor only wins if the studio grows or pays out profits.
Quick check
Looking back to Stage 2: during due diligence, the buyer asks who wrote and changed each part of our code, and when. Which studio habit answers that best?
- Our Git history on GitHub, where every commit (a saved change) has an author, a time and a message
- Our folder of copies called game_FINAL_v3.js
- Asking Kai and Remy to remember
Show the answer
Our Git history on GitHub, where every commit (a saved change) has an author, a time and a message
Every commit records who changed what and when. A clean history is proof a buyer can trust, which copies with made-up names could never be.