Today, we are happy to introduce you to Davide for a conversation on all things equity. Davide Scafuro is the Founder and Managing Partner of Orbita Verticale and Senior Investment Advisor at Lumen Ventures.

Let's get to know him better and discover how his investor experience helps him work with founders on managing equity correctly.

Who is Davide Scafuro & Orbita Verticale?

“I am Davide Scafuro, and I have a rich background in the fashion industry and a passion for entrepreneurship.

Over the years, I've been deeply immersed in the vibrant startup landscape, wearing the hats of both an entrepreneur and an astute investor. The inception of Orbita Verticale was driven by a singular mission - to provide unwavering support to early-stage enterprises, guiding them through the intricacies of equity management and a myriad of other critical facets of their journey to success.

Orbita Verticale is an early-stage venture capital firm that focuses on investing in innovative startups, primarily in the technology sector. The fund provides financial support, strategic guidance, and mentorship to help startups grow and succeed.”

Davide’s view on how to manage your cap table & equity.

Davide has a strong foundation in the marketing and fashion industry.

He has gone through diverse roles, from the complex venture capital world to taking the bold entrepreneurial lead and founding startups.

This journey allowed him to nurture a profound understanding of startups' myriad challenges and opportunities, particularly about the art of effective equity management.

“Through firsthand experience, I've come to recognize the importance of founders possessing a crystal-clear comprehension of their ownership structure.

My professional journey has equipped me with a profound grasp of startups' managerial and operational dimensions. This experience enables me to connect with founders on a deeper level and offer them pragmatic advice.

_I've realized that success in this space is not solely about funding but also about providing mentorship and imparting valuable insights to empower founders in making well-informed decisions regarding their equity management._”

Davide works actively with startup founders on equity management, so we asked him what this looks like daily.

“We work closely with startup founders to address equity management issues on an ongoing basis. It's a crucial part of our investment process.

_We understand that how equity is distributed, how the cap table is managed, and related matters are fundamental to a startup's long-term success. We are dedicated to helping founders tackle these challenges effectively._”

Furthermore, we wanted to learn from Davide the role of a cap table in his investment thesis and his recommendations for startup founders.

“The cap table structure is undeniably a pivotal element in our evaluation, although it's not the sole determinant. We also analyze factors such as market potential, team proficiency, and various facets of the business.

Nonetheless, an excessively convoluted or unfavorable cap table can raise concerns, potentially signifying governance and alignment issues among stakeholders. Striking a harmonious balance is crucial, as it's imperative that the cap table aligns with and bolsters the company's long-term objectives.”

More flexibility from investors to improve cap tables at an early stage.

“The company's stage does play a role in shaping our tolerance for cap table issues to a certain extent. There is typically more room for flexibility in making adjustments and corrections in the early stages.

However, as the company matures, the cap table should transition into a more stable structure with reduced susceptibility to changes. We tend to be more accommodating of cap table issues in early-stage startups, understanding that they may require time for resolution as the company evolves.

Furthermore, ensuring that the team, including founders and key employees, holds an equitable share of the equity to maintain a strong alignment with the company's goals is of utmost importance.”

Broken cap tables come with challenges, and investors must know how to address them.

“Investing in a company with a significantly disrupted cap table would pose challenges. A disordered cap table can signal past mismanagement and even legal entanglements.

However, we would thoroughly evaluate the unique circumstances, considering whether the founders proactively addressed the issue. While other positive factors may partially offset the problem, it remains a substantial concern.

In such cases, we might explore the possibility of secondary transactions, although, particularly in the early stages, prioritizing the allocation of funds for the company's growth is often the most prudent approach.”

Cap table red flags for investors:

• Losing control of your startup before reaching the Series A funding round.
• Not establishing a clear ESOP early on.

“It's important to carefully manage equity distribution to retain influence and provide incentives to crucial team members.”

Getting expert help on ESOPs

Awareness of ESOP plans and cap table management differs from one startup ecosystem to another. Here is how this looks like in Austria through Davide’s lens:

“It's crucial for founders to proactively educate themselves on these subjects and seek counsel from seasoned advisors or mentors.

Local startup associations, legal experts, and venture capital firms like Orbita Verticale can serve as valuable sources of resources and insights to aid Austrian startups in crafting more robust cap tables and implementing effective ESOP programs.

Building a strong network and leveraging the expertise of experienced professionals can play a pivotal role in enhancing the aspects of startup management.”

Best practices in equity management from Davide

Before diving into Davide's direct recommendations for startups and how to manage their equity, he wanted to highlight the importance of equity ownership for European founders.

“Clarity in ownership is crucial when assessing an investment opportunity. It provides transparency and ensures that all stakeholders are on the same page.

Lack of clarity can lead to disputes and complications down the road, potentially jeopardizing the success of the investment.”

Clear vesting schedules.

“One effective best practice is establishing transparent vesting schedules for founders and early employees.

This ensures that their interests are aligned with the company's long-term success. I've had experience with a startup that implemented a well-structured vesting schedule, which played a pivotal role in securing the commitment of key team members to the company's growth over the years.

Furthermore, it's worth mentioning that we always use good and bad leaver clauses for founders to address various exit scenarios.”

Strategic fundraising.

“In my opinion, a strategic approach to fundraising is key to avoiding future problems. It's not just about raising capital for the round; it's about finding the right investors to support the company's growth.

Strategic investors can provide invaluable guidance and connections, and aligning with them early on can prevent a host of issues down the road.“

Resources mentioned in the discussion:

Connect with Davide:

• Linkedin
• Orbita Verticale
• Lumen Ventures

Want to learn more?

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