If you have recently launched a company or are in the early stages of developing one, you have probably heard of a cap table, or capitalization table, and wondered whether it is necessary for your startup. Startups commonly use cap tables to display their total ownership capitalization or equity capitalization. The intricacy of a startup’s cap table increases as it develops. One method to keep track of shareholder shares and ensure company success is through cap table planning.
Benefits of a Cap Table for Startups
Cap tables are important because they show investors the overall health of a firm, which benefits the startup in the following ways:
Monitor Startup Value
A thorough, well-maintained cap table helps a startup’s employees easily consult if they have options or stock shares in the startup. Cap tables also help current investors and founders grasp the value of a developing firm.
It Provides the Structure of Ownership
As your startup grows, investors can learn who owns what shares of a company and who is in control using cap tables.
Used in Fundraising
If you want to raise funds, it is important to understand what you are giving up because investors typically ask for a percentage of your business. The historical information in a cap table may impact negotiating the current valuation for fresh fundraising.
Ensure Smooth Audits and Compliance Checks
In the event of an audit, a well-managed cap table can enable your legal team to show accurate and well-organized information on the history and holdings of your business.
Creating a Cap Table
A cap table should be thoughtfully organized around a few essential components:
- Equity ownership: Startup companies need a cap table to show company structure designed in a simple and organized layout, showing who owns what shares and who is in control.
- Types of Shares: Indicate who owns preferred stock versus who holds common shares that receive no special treatment.
- Convertible debts: This convertible debt is considered in all ownership calculations through equity dilution.
Why Using a Cap Table is better than an Excel Spreadsheet
Your cap table is far too important to include it in a spreadsheet housed in a folder. The cap table comprises several legal information and transactions, including issuing shares and converting debt into equity.
A spreadsheet cannot correctly illustrate this complexity when it becomes quite advanced. With many responsibilities, cap table management is critical to ensuring everything runs well.
What to Include in Your Cap Table
All cap tables should include the following information about every shareholder:
- Name
- Number and type of stocks they have from each fundraising cycle
- The cost of such shares
- The percentage of the business they hold
Ensure Accurate Cap Table Management with an Easy-To-Use Software
Equity is unquestionably the most significant resource when it comes to startups. Professional cap table management software makes it easy and hassle-free to keep track of every shareholder’s equity as your firm grows.
Astrella is in the business of assisting your firm in attracting high-quality investors by making our cap tables simple to use, precise, accurate, and private. To help you choose the best option for your startup, request a free demo of our services.
Tom Kirby
Tom Kirby serves as the Head of Global Sales at Astrella. With more than 20 years of experience in sales and business development, he is dedicated to fostering strong client relationships and assisting both private and public companies in understanding and effectively communicating their value.