Scouting the Terrain: Mapping Your Climb with Cap Table Intelligence

Starting a company is an exciting and often intimidating adventure. Making the climb from the company’s founding to a public offering or exit strategy can seem impossible. In fact, about 40% of businesses who say they are about to go public later realize that they are missing crucial data and are unable to reach an IPO. But, with the right tools guiding you, your business is much more likely to arrive at the peak. Read on to learn how a cap table management system can be an invaluable asset at each point in your company’s journey. 

First checkpoint: Breaking new ground

Every great company begins with a single step. At this point of your journey, you’re starting a business with just yourself, or perhaps one or two other people, and you are working tirelessly to make a great idea a reality. It might seem counterintuitive to start thinking about your exit. But as your business evolves, you’ll most likely get a better view of where you want things to end up—whether that’s employee ownership, IPO, or even acquisition. Ask yourself, what kind of company do you want this to be? Is this going to be a small-to-mid-sized privately owned company? Are you hoping to be acquired one day? Or do you have bigger dreams, like an IPO? 

If you don’t make intentional choices from the beginning of your company journey, you can find yourself seeking rescue later on. Even if your cap table data is as simple as you owning 100% of the business, there should be a record of that. Tracking ownership from day one will provide a clear genealogy of shares as company ownership evolves over time, which will make future business decisions and developments much easier. Know the landscape of your business and what you hope to achieve, then use a software specifically designed for cap table optimization to help you keep clear records that will aid your future decisions regarding who invests in you and how your shares will be affected if the business goes public. 

Second checkpoint: Gathering resources 

At this checkpoint, you’re raising seed money to grow your business. This is when you’ll be asking friends, family, neighbors, and colleagues if they are interested in making an investment to support you on your journey. Company ownership is also getting more complicated at this point. As you promise stock options to these early investors, it is critical that there is a record of exactly what was offered and when. 

Many early investments are conducted with a check, a handshake, and a verbal agreement of ownership. But these types of deals aren’t best practice, because as your company becomes more successful, more of these early investors will reach out to you, wondering where their cut of the success is. Your early investors may not realize that making one of the first investments doesn’t always translate to millions of dollars in their pocket if the company is successful. The value of the investor’s stock options will change as your company grows. If you have a cap table management system, these early investors will be able to see their shares, understand their value, and track that value over time. Having a cap table with proper modeling is essential for both you and your investors to have a clear record of ownership that is accessible, user-friendly, and informative. 

The midway checkpoint: Series A 

Once your business has shown progress in building its business model and proven its potential to generate revenue, it’s time to start pitching to professional investors to secure Series A funding. These professional investors hear hundreds of pitches per year, and your financial information needs to be clearly sorted for them to seriously consider your business.

Having organized, trackable ownership data is a huge benefit at this point in your journey. Professional investors and venture capitalists want to know that their money is secure and that they will see a return on their investment, and they are prepared to sort through your financial data with a fine-tooth comb to ensure this. If they see an outdated spreadsheet, or more than one spreadsheet with conflicting information, it will be a nonstarter. Equity management software will keep your financial information organized and protected, proving to professional investors that your business is ready for growth. Once you secure Series A funding, your business is halfway to the summit, with the peak on the horizon. 

Ready to see how Astrella’s team of experts can help you map your climb? Give us a call or shoot us an email, we’d be happy to lend you our expertise!

Fourth checkpoint: Attract and retain top talent 

At this checkpoint, it is time to build a bigger team that can scale up your business. While previously you may have had a small team of employees working on nights and weekends, now you are able to hire a larger team of full-time, salaried employees with stock options. This is also the point in your journey where you will form a board of investors to manage the company. 

Your board of investors and employees will need a robust solution to understand the company’s ownership and financial data. Having one user-friendly, reliable place for them to see this information is critical. Some cap table systems also have a hub to store your financial documents. This can be a great way to keep track of the specific agreements signed, and help to keep all ownership transactions above-board if your business were to be audited.   

Your business can go through the effort and expense of granting equity, but how valuable will this be to your employees if they don’t understand what it means? Cap table intelligence systems can provide scenario planning tools to help employees see how the value of their shares will be affected by future investments or changes in the market. At this point in your journey, you are in the final push to make it to the peak of the summit, and it’s important to invest in your team and the proper tools to scale the last stretch of the mountain. 

The final checkpoint: The fork in the road 

This is the point in your journey where you are likely asking yourself, “Should I stay, or should I go?” Your company has grown to 100-200 employees, you’ve achieved consistent growth, and now it’s time to decide if you want to continue its growth under your private ownership, if management wants to sell their shares into employee stock ownership, you want to be acquired, or if you want to pursue an IPO. If you are interested in the first option, congratulations! You’ve made it to your destination. If you are interested in the employee stock option, this blog explains how it can be a quick and effective exit strategy. However, if you are interested in one of the other two goals, here is what you will need to consider.

If you’d like your company to be acquired, it’s important to be strategic. You want to be ready for when the right opportunity comes, but you don’t want to spread the word that your company is on the market because you could unintentionally be sending a message that it is in trouble. Instead, you want to be prepared for the perfect offer to be made at any moment. If a lucrative offer is made and your company does not have its financial information in order, you will miss out on the deal. But even what sounds like a lucrative deal can be deceiving. Impressive offers don’t always translate into valuable shares. You need a quick way to evaluate if the offer is right for you to avoid stumbling up the trail without a clear map of what the future holds. This is why scenario planning tools are so valuable. Prepare for the right offer by having all your financial information up to date and ready to go in your cap table, and utilize scenario planning tools to see how the offers will affect the value of the company’s shares.

If instead you want to pursue an IPO, there are quite a few steps your company must take before you are truly ready. First, you’re going to need to raise even more capital from super investors who will be contributing multimillion-dollar investments. Next, your company will need to prove a certain amount of growth and revenue over time. After that, you will need to move all shareholder records to registered transfer agent. These agents require very specific records, and any missing information will prevent you from going public. 

While the path to an IPO is winding, there are tools that can help you prepare. With the right cap table software, your financial information will be clearly organized, the genealogy of all shares will be preserved, and you can access educational tools like an IPO indicator tile that will help you know how far along you are on your IPO trek. 

Where will Astrella take you?

Regardless of where you choose to take your company once you find yourself at that fork in the road, Astrella’s unique software and tools can assist you at every checkpoint in your journey. Our team of experts provide top-notch support and education. Astrella’s Scenario Planning Tools are built on solid modeling that can give you insight into the future value of your company, our software provides share tracking through an immutable ledger powered by immutable audit trails, and we do it all in a simple and secure setup that is user-friendly for employees and super investors alike.                                                                                                                                                                                                                                                                                                                                                                                       

Ready to see where Astrella will take you? Speak with a trusted expert to get started today.