As an investor, you want to know what you’re getting yourself into. The best place to start is with the prospective company’s cap table.
A cap table is essentially a spreadsheet. The spreadsheet offers investors a quick glance into which shareholders own what, how much, and the best place for you to jump in. That said, there are several things you need to look for in a company’s cap table before you decide to jump in. Information such as updated ownership structure that reflects how the finances shift as the company’s employees come and go, any dilution resulting from new shareholders, and vesting schedules.
There is more to it than that, which we will discuss in more detail below. As a business owner, you’ll need to put yourself in the shoes of potential investors. They will want to take the entire financial picture into consideration before choosing to fund your company. This makes upholding an attractive LLC cap table critical to attracting new investors.
1. Investor Details
The investor details you’ll want to consider when creating a cap table for your company are as follows:
- Contact details
- Identity validation
- Nominee to the account held by the investor
- Any data that helps you identify and verify each investor
These details are derived from each investor themselves, as they have access to their personal details. This access acts as proof of their holdings.
2. Investment Details
When you make an investment, the thing you care most about is transparency – you must have access to your investment categories, as well as the total amount. You also want to compare your total investment to the most up-to-date information on current market value to calculate maximum return on investment.
3. Share Details
Generally, there are two types of shares any company seeking investors will need to add to their cap table. This includes common shares and preference shares.
Common shares belong to business owners and investors as proof of the money they have paid into your company. While these shareholders have the least claim on a company’s assets they are extended the right to vote on important company matters.
Preference shares are for investors who prefer a fixed dividend and want to secure their return. These shareholders are not usually extended the right to vote within the company. However, they do have preference over common shareholders in the event of liquidation of assets.
4. Shareholder Details
As a business owner looking for investors, it is important that you maintain full transparency when it comes to who owns shares and how much they own. In this way, the cap table conveys who holds what percentage of the company. This information is relevant in determining who should be more responsible to lead fundraising efforts, and who will have a greater say in making decisions concerning capital.
5. Cap Table Security
The last thing you want to do is attract investors that will share your financial information with outside entities – either on purpose or by accident. For that reason, cap table security is critical. The details of your holding, as well as the date and amount, should always be kept 100% confidential.
Before bringing investors on, you should ensure that the company’s cap table is secure. Not only is this important to protecting your privacy but also securing your data. To this end, there must be multiple checkpoints in place, which result in real-time red flags that alert founders of potential security risks.
6. Good User Experience
While the information included in any quality cap table is fairly straightforward, one area that separates the good from the excellent is user experience. Some cap tables can be cumbersome and leave the user confused as to where to find information, as well as offer a counterintuitive flow of information. As you begin to explore what a cap table looks like at any given company, you want to consider user flow and design.
If the cap table gets you from point A to point B in a way that makes sense with the progression of information you seek, the pages load quickly and you can navigate back and forth with ease, you’re working with a cap table that’s been designed with the user experience of your stakeholders in mind.
7. Ease of Access
If you can’t access your cap table, you have a big problem. In order to guarantee the investor-readiness of your LLC cap table, you must have full visibility. This is where savvy technology comes into play.
Inventors should have access to cap tables through a web portal or mobile application. They should be able to freely log into the portal and view their holdings. The application your cap table is running through should also offer the option of sending periodic emails with the latest updates. An investor should never have to drop into the company’s brick-and-mortar location or even make a phone call to get the most up-to-date information on their investment. Conversely, the cap table information should be accessible remotely at any time.
Get the Right Investors with Astrella
At Astrella we are in the business of helping your company attract high-quality investors by making our cap tables easy-to-use, precise, accurate, and private. Investors want to and should be able to view their investments at any given time and you, as a founder, should also have access to your company’s financials so you can make informed decisions at any time.
Set up your cap table today with ease and manage it from anywhere so you always have the most up-to-date information to attract the investors you need!
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.