What Is A Cap Table In Private Equity?

A capitalization table, or cap table, is necessary for any startup or business as it helps to organize and display the company’s equity ownership. It also helps track things like convertible securities, stock options, and stock compensation grants. Ensuring your cap table is well-maintained, organized, and clearly defined will accurately represent the company’s current market value, who owns what amount of shares, and the overall percentage of the proportion of ownership. With all of this important information being input into one place, it’s important to take the time and effort to ensure proper cap table management.

Defining Private Equity

Private equity is essentially the investments of equity ownership made in private companies. These capital investments are made into companies that are not publicly traded. Many investors seek out private equity funds as their returns are better than those from public equity markets. Private equity investments typically come from individuals with high net worth or firms looking to acquire control over public companies in order to transition them to private.

Private Equity vs. Venture Capital

Oftentimes, private equity gets confused with venture capital – and vice versa. Although they are both generally involved in cap tables, they are quite different.  Which is included in your cap table will depend on what level your company is at, from new startup to large, mature business.

Private equity is most commonly a group of investors that are putting their focus on companies that are already mature. They may often invest in a company that is under distress so they can buy it out, improve operations, then sell the company for a profit.

Venture capital, on the other hand, is typically from investors during a company’s startup phase. While it is a form of private equity, it’s reserved for smaller companies with excellent growth potential. It’s a much riskier investment since it’s not a guarantee of what a company will turn into, but it could end up providing a greater return on investment.

How Private Equity Applies to Cap Tables

Private equity ownership needs to be managed properly in cap tables. These investors need to understand and see the company’s value growth or change from the time of purchase. The cap table can also provide them with a profitable exit strategy, whether they need to resell the company, turn into an initial public offering, or different option. All of this applies to any form of private equity ownership as it’s important for investors to be able to visualize business growth and profitability.

Managing Private Equity in a Cap Table is Easy with Management Software

From large corporations to small businesses, managing investments and stock ownership are essential. Attempting to do this on your own is possible, but it leaves open the possibility of mistakes, disorganization, and even potentially turning away potential future investors. Tracking any form of investment, including private equity, is easy when you use the right cap table management software like the one you’ll find from Astrella.

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