Before you launch a CSF offer, you will need to consider your company's capital structure and whether you need to undertake a "share split" to ensure your company is appropriately capitalised before the offer.
Capital structure
The capital structure is the combination of equity and debt used by your company to finance its overall operations and growth.
This might include:
- ordinary shares
- founder, A class or other classes of shares
- SAFEs
- options
- ESOPs
- convertible notes
- bank debt
- founder loans
The CSF offer document must set your capital structure on issue before and after the CSF offer.
Share splits
A share split involves a company taking its existing shares and dividing them into multiple new shares. After a share split, each share is worth less individually but shareholders will have more shares in total. Therefore, the shares still have the same total value as before.
A share split can be an effective way of increasing liquidity and the overall number of share without changing the company's overall share value. This is important to consider before issuing new shares under a CSF Offer, including from a dilution and valuation perspective.
There will be a few things things to consider before you do the share split e.g. pre and post money valuation, how much you intend to raise under the CSF offer and what percentage of the company you plan to offer to investors.
Let’s say a company has 1 million shares, each valued at $10. If the company performs a 2-for-1 share split, it will split each share into two new shares. This would increase the total shares to 2 million, while the individual share price is halved to $5.
The total value remains the same at $10 million, but shareholders now hold twice the number of shares at half the previous price. This process can make shares more accessible to new investors and improve liquidity without changing the overall market value.
Before proceeding, evaluate factors like pre/post-money valuation, intended raise amount, and the equity percentage for investors. It’s crucial to discuss these details with your accountant, or consult a CSF campaign manager if you don’t have one yet.
