What Do Investors Look For in a Cap Table?

Investors contribute to a business in hopes of receiving substantial profits, and they can easily determine the health of the business and whether to invest by looking at the cap table. Of course, investors don’t only care about profits. Investors are also looking at the information within the cap table to find any red flags that may indicate they should steer clear. Companies must do their best to present all investment information in a straightforward, clear manner, which can be done easily with the right cap table management software. We’ll help you understand what investors will see in your cap table that will make your business look more attractive – and which things may end up turning them away.

Appealing to Investors: What They Want in a Cap Table

Here are a few items that enhance the value of your cap table in the view of an investor:

Details, Details, Details

The cap table should show investor details, investment details, and shareholder information.

  • Investor details: This tells prospective investors the names and percentages of ownership of the existing investors, which may help boost their self-assurance. They will also be interested in the number of other investors, but be aware that if there are too many in the mix, prospective investors may view it as a distraction and decide not to move forward.
  • Investment details: Investors must be able to see the components of their investment and the total amount.
  • Shareholder information: Investors prefer to see founders who still own significant holdings in their company, as this influences their incentive to drive the company ahead.

Secure Software

The cap table management software you use must be exceedingly secure to preserve privacy and assure data safety. An investor’s assets as well as the date and quantity are highly discreet, and they will not want to share them with the public.

For the security approach, Astrella manages private shareholder ownership data in real-time using a blockchain-enabled platform that enables automated real-time tools for tracking ownership and performance.

Easy-to-Use and Accessible

Keep your cap table easy to read and interpret. Investors can easily understand information represented visually using graphs, charts, and infographics.

During cap table creation, make it aesthetically appealing using clear, basic designs, readable fonts, consistent headlines, appealing colors, and a clear organizational framework.

Not Appealing to Investors: What They Don’t Want in a Cap Table

Some red flags potential investors might find include:

Page Breaks

You may turn off new investors if your cap table is so long that it requires page breaks. Combine groups of investors into more extensive cap table entries with specified and contractual contact points.

Equity Given to Outsourced Partners

If you outsourced any work in exchange for equity, it would also appear on the cap table. Investors prefer to see a fully assembled team with long-term incentives to stay with the company. For them, unequal dispersion of equity increases risks.

Impossible Exit Solutions

Cap tables enable some calculation of intriguing arithmetic to a business’s prospective future. However, you do not want to overlook anything that would make your cap table or exit scenario appear unrealistic to investors. New investors will not sign if your cap table does not make sense.

Playing Favorites

It is not a good idea to take sides at the cap table. Calculating who gets what at an exit is simple when terms are standardized. The computations get overly complex when each investment has its own particular terms.

Create an Accurate, Secure Cap Table for Your Business

Proper cap table management requires knowledge, preparation, and strategy. Professional cap table management software can help you manage your investment and make your entire business successful. Get started with Astrella today by requesting a demo!