We’ve all seen Shark Tank – the contestants go through elaborate preparations to quickly pitch television venture capitalists, attempt to make a deal, and get some buzz around their idea. The saying goes, “there’s nothing real about reality TV” and there’s truth to that. While Shark Tank makes for good TV, the reality is some contestants secure financing and end up seeing their product in stores. Sometimes you even see the Sharks themselves doing commercials (can you believe Kevin O’Leary scrubbing a toilet!?). One thing you don’t ever see is Mark Cuban asking to see a cap table and that’s where reality and TV start to separate.
Next to the big idea itself, the founders’ intellectual property, there’s nothing more important than the cap table. This idea gets lost on many early-stage companies because they are consumed with the drive and the vision they have to create the amazing things they do every day. Those attributes will almost certainly come through in the pitch when they present to real VCs who are hungry to fund start-ups with great ideas, but I can assure you they will ask for the cap table. It’s a table stakes item and funding won’t happen without it.
Think about if you were going to lend some of your own money. You’d probably act like a loan officer at the local bank. You’d want to see a credit report, and, if it was a business, some financial statements before you decided. Many early-stage companies are pre-revenue and their financials just don’t look good because they don’t have any assets and little to no money coming in. That’s fine. What they must have to get that next round is a well-organized cap table. Without any doubt, you don’t get a second chance to make a first impression.
Financiers primarily want to understand who owns the company and the cap table is the way to accurately show ownership. It follows logically you would want the cap table to be clear, concise, and up-to-date. Using old fashioned paper and ink should be reserved for wedding invitations and while Excel is what many companies show up with, that’s not ideal either. A clean, clear cap table from a commercial platform explicitly designed for that purpose is the only way to go.
An often overlooked benefit – the earlier in the lifecycle of the company you start, the easier it will be to keep up the cap table over time as you take on more funding, sell more shares, and grant more options. The biggest issue I’ve seen is founders either underestimate the importance of the cap table or they just don’t realize how inexpensive it is to use software. From idea to exit, investing in a digital solution saves time and energy. That gives you more time back to keep working on that great idea!
There are more choices than ever out there in the market. By all means necessary, get one.
Don Gillotti, CEP
Senior VP, New Business
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