5 Habits To Ensure A Clean Cap Table

When managing your capitalization table or, cap table, maintaining the precision and validity of its information should be top of mind. Whether your business is looking to increase investor acquisition, prepare your cap table for the next financing round, or predict capital gains with scenario testing, a “dirty” cap table will hold you back.

But what qualifies as a clean cap table? And as a CEO, what can you do to ensure potential investors don’t walk in on poor housekeeping?

In this article, not only will we establish what it means to have a clean, organized cap table, we’ll discuss 5 easy habits to ensure your cap table remains pristine. From instilling detailed tracking practices to selecting the best cap table management software, we’ll make sure you’re fully prepared.

Clean Cap Table

A clean cap table means the resource contains detailed and current financial information for tracking ownership, employee options, number of shareholders, funding sources, and transactions. This type of cap table allows for easy access to necessary shareholder information and provides an accurate picture of your company’s financial future and goals. 

In comparison, a dirty or messy cap table will possess outdated information such as inaccurate ownership percentages, dead equity or missing stock options. This type of cap table is usually a result of poor housekeeping, unclear stock administration habits or antiquated recording methods such as Excel spreadsheets.

Why is a clean cap table so important?

Keeping your cap table squeaky-clean is an important habit for any startup company, regardless of size or industry.

A capitalization table that is actively updated is key to making the right financial decisions as your company grows. This financial resource plays an integral role in helping companies acquire early investors, accurately track founder shares and investor ownership, record liquidation preferences, prepare exit scenarios and more.

Messy cap tables not only give current invested partners the wrong impression, but poor cap table management can also deter otherwise interested parties from investing altogether. For this reason, effectively managing your cap table to accurately reflect your assets, funds, ownership and expenditures will ensure the success of your business in the long run.

How To Clean A Messy Cap Table

While cleaning a messy cap table might seem overwhelming at first, there are many habits and digital solutions available to help keep startups on track. Worst case scenario, you will need to track down source documents and perform a thorough audit to confirm or deny the accuracy of information.

It’s important to create a cap table where shareholders can manage and track their investment in your company without questioning the accuracy of said information.

1. Track Detailed Ownership Percentages

In order to foresee how future investment strategies will impact current investors (otherwise known as dilution), you must have a cap table that tracks current, detailed ownership percentages. Not only do investors want to understand the specifics of their current investment in your company, they also seek prompt updates and confirmation of their share ownership.

2. Record Both ISOs and NSOs

Another telling characteristic of a messy cap table is failing to account for both ISOs and NSOs. Not only should a clean cap table account for both of these stock options, but sending stock option grant agreements to employees in a timely fashion is important as well. This grant agreement helps to establish the investor vesting schedule, type of stock option being awarded, strike pricing and more.

3. Keep Everything Up To Date

Keeping records up to date is one of the most important habits to form when it comes to maintaining a clean cap table.

When investors review an out-of-date cap table, it is perceived as disorganized and a poor reflection on the company’s financial housekeeping. This serves as a red flag to potential owners as they assess your business for risk.

4. Resolve Dead Equity

Unlike other types of equity, such as preferred stock or retained earnings, a clean cap table should not have dead equity. Dead equity occurs when a large portion of company stock is awarded to a founder or other owners who are no longer active with the business. This can lead to a reduction of active partner shares and discourage future investors who are not satisfied with below-average market capitalization. 

Considering the incentive of company stock and the confidential information shared with stakeholders on your cap table, shares from former partners should either be bought back or redistributed as soon as possible.

5. Invest In An Equity Management Solution

Lastly, investing in an equity management solution is a sure-fire method to avoid a messy cap table, while saving time and money.

In the early days of capitalization tracking, a new company would use spreadsheet software such as Excel. While offering a more hands-on approach, this antiquated method is a time-consuming responsibility that leaves room for error and can quickly get out of hand after a financing or funding round. However, specialized cap table solutions open the doors to automatic updates, 24/7 accessibility, and compliance assurance. When reviewing these options, you’ll want to make sure the service matches the needs of your unique business model.

Keep Your Cap Table Clean with Astrella

With Astrella, you’ll never need to worry about spending hours keeping your cap table updated. Our cap table management solution does the hard work for you using artificial intelligence to make setup and active updating a breeze. Powered by immutable audit trails, our clients are given the power to solely focus on growing their business, knowing that their information remains secure, accurate and accessible to all necessary stakeholders.

Don’t believe us? Request your free demo today to see our software in action!

About the Author

Carine M. Schneider, FGE (Fellow of Global Equity), is an experienced and well-connected leader in the private market and global compensation industry with extensive experience working in consulting, technology, and financial services. She was named one of the 100 Influential Women in Silicon Valley by the Silicon Valley Business Journal and one of 17 “Women to Watch” in 2017 by Brown Brothers Harriman Center on Women and Wealth. Follow Carine on Twitter and LinkedIn.