A cap table is short for ‘capitalisation table’, and to put it simply, it is a great way of displaying key information about a business’s percentages of ownership, equity dilution and also the value of equity in each investment round by investors, founders and any other shareholders.
In this blog, we will explain firstly what a cap table is, secondly the importance of a cap table for your early-stage business, and thirdly how you can keep your cap table up to date.
So let’s start with digging into the detail of what a cap table is…
To begin with, you may simply have your cap table on an Excel spreadsheet, however, as your start-up begins to grow you will most likely need a more automated system to log your data. For example, as you go through more funding rounds and allocate more shares, you will need a more advanced system to keep all of this data secure and updated.
We can recommend Capdesk as a great company to help you manage your share plans, digitise your cap table, and run secondaries, all on one platform!
So breaking down the meaning of a cap table, ‘capitalisation’ in the start-up world simply means acquiring funding and growing your business as a result. Therefore your cap table is there to capture all the data from your funding rounds in an easy-to-consume format. It will show investors who owns the business, how many shares each of these people own, what percentage of the company the shares hold, and it is also good to add the date the shares were issued and the price of the share.
So what is the importance of a cap table?
A cap table is crucial if you have both internal and external shareholders, or you are looking to raise investment. Once there is more than one shareholder in the business, it is crucial you have all company investment data in one place, so that should you run into any trouble you can easily present the data, as well as also being able to share this data with other potential investors.
If you create a cap table in the early stages of your company, it will save you from having to scramble back any previous company data and you will thank yourself further down the line when you can analyse all your data in one glance.
Another important point to make is that you will very much struggle or not be able to complete a funding round without a cap table. Your potential investors will want to see your cap table so they can understand who currently has ownership of the business and what they will get for their investment. You will therefore also be able to produce future forecasts for your investors to assure them they are making the right decision by investing in your start-up.
So lastly, let’s talk about keeping your cap table up to date…
As discussed previously, as your company grows and you gain more shareholders, you are going to need a more advanced automated system rather than just Excel spreadsheets. You will need an automated system where you can easily make changes each time a shareholder is added and make sure the correct numbers are being displayed.
You will also need to make sure that all the data can be easily seen and translated. This will make it more appealing to investors.
As a starting point…at The Finance Department, we have a great cap table example on our ‘resources’ page for you to download!