What is a cap table in investing?

A capitalization table (or “cap table”) is a document, like a spreadsheet or table, that details who has ownership in a company. It lists all the securities or shares in a company including stock, convertible notes, warrants, and equity grants.

What is a good cap table?

A good cap table has the following characteristics: The CEO (original founder) owns the most. The founders own as much as possible. There is an ESOP already of around 15%

What do investors look for in a cap table?

A cap table lists out all of a company's securities—such as common shares and preferred shares, options, SAFEs, convertible notes, and warrants. It also shows how much of each security type each investor owns, the value of their respective stakes, and their current ownership percentage.

How do cap tables work?

The capitalization table shows each investors' equity capital stake in the business, which is calculated by multiplying the share price by the number of shares owned. In most cases, the names of the security owners will be listed on the Y-axis and the types of securities on the X-axis.

What does cap table represent?

A cap table (also called capitalization table) is a spreadsheet for a startup company or early-stage venture that lists all the company's securities such as common shares, preferred shares, warrants, who owns them, and the prices paid by the investors for these securities.

Cap Tables for Startup Founders Part 1: Pre-Investment

How do you calculate the value of a cap table?

Calculating this is relatively easy. Once you know how many shares the company will be issuing to the investor, you should simply divide the amount of the investment by the number of shares to be issued. In the above example, the issue price per share would be equal to $13.33 (1M / 75,000).

Does an LLC have a cap table?

Members of an LLC need to create a cap table in the early stages of the company's formation before they create other company documents. Generally, most LLC cap tables are created after a few rounds of financing, once the sources of funding become complex.

Who should manage the cap table?

Most companies rely on competent legal counsel to maintain their cap table and provide their executive team with actionable information in a digestible format. Here are six best practices that help founders improve and maintain an effective cap table management process.

How do you clear a cap table?

The idea behind cleaning a cap table is simple: restructure the cap table so that who owns what can be seen clearly without surfing through pages or calculating things. It should also show the market price and all the equity classes that are there in the company. To restructure the cap table is quite easy.

Is a cap table legally binding?

Often when people ask us about the confidentiality of a cap table they're curious if there is a legal requirement to make their cap tables public. The answer to this question is no. In fact, most companies choose to keep their cap tables private and confidential.

Do you need a cap table?

Maintaining a capitalization table is essential, as things that were relevant when you started your business have likely changed. For example, increased investments, more funding rounds, and more employees can impact the numbers in your chart, so keeping it up-to-date ensures you always have the correct information.

Should you share your cap table?

As long as this information is provided, not much is required to be shared. It is difficult to provide customized access using excel sheets. But cap table software provides this personalized feature to every employee.

What is a messy cap table?

As equity is so important to founders, key employees, and investors, a clean cap table should include only them. A messy one includes anyone other than them. The equity percentages of founders, key management team, and investors can be in double digits (e.g. 10% to 99%).

How do you calculate price per share on a cap table?

It's quite simple: just divide your pre-money valuation by the total “fully-diluted” capitalization calculated immediately prior to the financing on a fully-diluted basis. That will be the price per share new investors will purchase at.

What does cap table look like?

Cap tables usually include a list of names or groups (founders, investors, common stockholders, etc.) on one axis and details around what they own (what type of securities, how many they own, when they invested, what percentage of the company they own, etc.) on the other axis.

How cap table planning can benefit your startup?

A historical look at cap tables can give you a sense of the company's health and give you a leg up on the competition when it comes to wooing investors. A well-organized cap table allows the startup's audit and legal teams to determine the company's value by reporting best practices.

What does a clean cap table mean?

A clean cap table means that it is up-to-date for the latest transactions, accurately reflects company ownership, and shows options available to employees or capital providers. All this information needs to be quickly assessed to understand shares authorized, issued, and outstanding.

Is debt on the cap table?

All debt should be recorded in a section of the cap table. It is helpful to include the following information in the cap table document so you will understand how much equity might be issued to noteholders at some point in the future: Date the debt was incurred. Amount of indebtedness.

How does cap table dilution work?

Dilution refers to a decrease in an owner's percentage interest in the company. If there are 4 million shares outstanding and you hold 1 million shares, that equates to 25% of the outstanding stock. If the company issues another 1 million shares, your percentage ownership drops to 20%, and you have been diluted 5%.

How do I update my cap table?

How do you avoid dead equity?

Dead equity can't always be prevented, but it can be minimized. For co-founders: Set up vesting schedules: when co-founders begin a business together, having strong vesting schedules – in which founders “earn” their stock ownership over time by working hard on the business – is critical.

What challenges do you foresee in determining ownership and creating your cap table?

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Should founders vest?

If one of the founders doesn't stick around, for whatever reason, they could walk away with more than their fair share. Making a thoughtful decision to require vesting allows the founding team to avoid that problem, ensuring that each founder can only keep a portion of her or his stock that has been ''earned.

What is a cap tie out?

This capitalization table review, which is referred to as 'cap table tie out', involves a careful review of the company's capitalization table against the company's board consents, board minutes, stock option grant awards, restricted common stock purchase agreements and other such documentation.