Building Your Cap Table from Scratch
Do you know how ownership works in startups? It has a tracking system called a cap table. This includes common shares, preference shares, options, and other forms of Equity. It’s important for founders, investors, employees, and others involved. By looking at the Cap Table, you can see who holds how much of the company and how the value of their shares changes over time. It’s like the startup’s ownership scoreboard.
In a startup, Cap Table is the blueprint of ownership. It spells out who owns a piece of the company — founders, investors, employees, and others. It’s a crucial document that tracks the flow of ownership stakes, revealing the story of a startup’s equity journey.
Why does your Startup need a CapTable?
For several reasons, a startup requires a Cap Table or Capitalization Table. Firstly, it clarifies the distribution of ownership among founders, investors, employees, and other stakeholders.
It serves as a key component for strategic decision-making, enabling founders and management to model different financial scenarios and plan for future funding rounds.
The Cap Table is equally instrumental in providing insights into the company’s valuation at various stages, supporting negotiations during funding rounds. Cap Table serves as a historical record of equity transactions, offering a collective view of the startup’s growth and evolution over time.
What are its Components?
A Cap Table (Capitalization Table) typically includes the following components:
Typically, people organize the structure of a Cap Table in a table or spreadsheet format, with columns representing the various components mentioned above.
It is essential to keep the Cap Table updated as the company evolves and new funding rounds or equity transactions occur. This ensures accurate and transparent tracking of ownership and equity-related information.
How is the Valuation Impact of Different Funding Rounds Reflected in the Cap Table?
As we know, a Cap Table is a spreadsheet that outlines the ownership structure of a company, including equity ownership and the distribution of shares among investors, founders, and other stakeholders. It provides a snapshot of the company’s equity situation at a given point in time.
Let’s use an example to understand how the Cap Table reflects the valuation of each funding round, dilution, and equity distribution.
Let’s consider the example below to understand this:
Initial Capitalization:
Founders start a company and issue 9,00,000 shares.
Each founder holds 2,00,000 shares, with 1,00,000 in ESOP.
Pre Seed Round
Pre-money valuation: $2,000,000
Amount raised: $222,200
Post-money valuation: $2,222,200
Ownership of new investors: 10.00%
Seed Round
Pre-Money Valuation: $2,222,200
Amount Raised: $1,000,000
Post-Money Valuation: $3,222,200
Ownership of new investors: 20%
Series A
Pre-Money Valuation: $3,222,200
Amount Raised: $2,000,000
Post-Money Valuation: $5,222,200
Ownership of new investors: 23.33%
Cap Table Post Funding
In this way, a Cap Table reflects the ownership structure of a company at different funding rounds, considering dilution and the issuance of new shares.
How do you build and maintain a Cap Table efficiently using Software?
Cap table management software makes creating and keeping track of a company’s ownership structure easy. It helps by doing calculations automatically and updating information in real-time, avoiding mistakes that can happen with manual spreadsheets.
The software provides a central place for stakeholders to see their ownership details and transaction history, promoting clear communication. Eqvista, for example, accurately records changes in equity and generates reports to fulfill legal requirements. Cap table management software simplifies ownership management, ensuring accuracy and ease of understanding to support improved decision-making.
Various educational resources are available online to help you understand the fundamentals of cap table management. For more details, check our resources page. You may also book demo calls with executives to help you navigate the process.
Perform regular audits of your cap table to ensure accuracy and compliance. This is especially important during fundraising rounds or other significant equity distribution events.
Try your One-Time Cap Table Setup with Eqvista!
As you can see from the cap table details, keeping track of who owns shares in a company is important. The cap table has the basic info about shares, options, warrants, and convertible notes and helps ensure the company follows all the rules about its shares. It also helps sort out agreements with shareholders.
Eqvista provides high-end security to protect user information and takes utmost care to protect our customer’s data.To learn more about our complete guide to cap tables or our online Eqvista cap table software, check it out here. Our cap table offers various functions for managing company details and sharing issues.
