Real-Time Data for Improved Decision-Making in Equity Management

Equity management supports fundraising efforts, financial management, maintaining tax compliance, and decision-making at the organizational level. It can improve transparency in ownership structures, simplify employee equity management, and streamline reporting for investors and regulatory bodies.

However, as startups become more dynamic, manually updating cap tables becomes increasingly unfeasible. This is a pain point felt by top executives, especially Chief Financial Officers (CFOs), at organizations growing at a rapid pace.

In this article, we will explore how real-time data can help you tackle this pain point and how it improves equity management as a whole. Read on to know more!

What is real-time data in equity management?

In the context of equity management, real-time data will include things that directly impact the cap table such as stock transfers, vesting of equity options, shareholder entries, and exits, employee stock option exercises, and buybacks of employee shares.

From a shareholder’s perspective, it is important to note changes in valuations that may occur because the company secured funding, expanded into new markets, displayed significant improvement in financial performance, or improvement in external factors like regulatory changes.

Founders and shareholders can benefit from real-time regulatory compliance data. Such data includes regulatory filings, 409A valuation reports, documentation for stock options, and tax compliance reports.

Founders and top executives can use this data to strategize and identify the next steps to ensuring tax compliance such as setting timelines to meet filing deadlines, arranging 409A valuations, making board proposals to optimize organization structure for tax purposes, and adjusting equity compensation plans to minimize liabilities.

Benefits of real-time data in equity management

Some of the ways in which real-time data can aid equity management are as follows:

Streamlining board governance and ownership tracking

Understanding which shareholder has the most influence and how this could change is the main utility of cap table-related data such as the addition of new shareholders, vesting and exercise of equity options, and exit of shareholders.

In large organizations, when there are several stock options and convertible securities, it can be difficult to manually notify all stakeholders about conversions. However, if your cap table software provides real-time data updates, you need not go around notifying stakeholders individually. The software will display all changes in real-time and with Eqvista, you can even set up automated emails.

At Eqvista’s platform, you can make proposals to the board and get real-time updates on approvals and rejections from board members. This significantly improves decision-making and transparency. It is a feature that has ensured timely actions and reduced delays in critical business decisions for many startups.

Streamlined fundraising processes

In fundraising rounds, prospective investors will want to know who they will be joining on the cap table and what the power dynamics look like at your company. They would also like to know about the anti-dilution rights and liquidation preferences held by other shareholders.

Another key component of funding round cap table analysis is understanding if the equity option plan and pool are adequate for attracting the necessary talent while not being overly generous.

If your cap table management practices provide you with real-time data, all of these tasks can be a breeze. For starters, preparation of pre- and post-money cap tables becomes easy. If you have records of rights granted to investors, you can simply prepare a summary that can be shared with potential investors without divulging information that could be misused.

By presenting an analysis of your employees’ equity option-related behavior, you can demonstrate how successful you have been at retaining employees through equity options.

Improved employee equity management

Employee equity option plans can seem straightforward at first glance. After all, most employees are offered a standardized equity option plan with similar exercise prices and vesting schedules. However, employees join in different months of different years.

So, equity options for different employees will vest based on different timelines. If you issue performance-based equity compensation, the vesting patterns may vary a lot more.

Also, the behavior of employees may differ. Some employees may prefer to exercise their equity options as soon as they vest. Others may prefer vesting equity options every 2–3 years. Similarly, the holding period can also differ for employees.

These complexities in employee equity management are only amplified as the organization grows.

Employee equity management is important since some employees can grow into key shareholders for your organization and eventually, influence decision-making. This is especially true for employee-owned organizations such as Robert W. Baird & Co., Recology, and WinCo Foods.[1]

Another important element of employee equity management is getting timely 409A valuations. You can significantly reduce your overall 409A valuation costs if you know when exactly you need them which is only possible through real-time data on equity option vesting and exercise.

Eqvista- Amplifying growth by simplifying ownership!

The most useful real-time data for equity management includes stock transfers, vesting and exercise of equity options, shareholder entries, and exits, employee share buybacks, changes in financial performance, and data related to tax compliance. Real-time data related to these elements help identify which stakeholders hold the most influence and enable agile decision-making.

Real-time data is invaluable during fundraising rounds as it eliminates the need to manually prepare a cap table or summarize the anti-dilution rights and liquidation preferences. If you have access to real-time equity management data, this information will already be readily available. All you need to do is censor any sensitive information and then share the relevant data with potential investors.

Additionally, real-time data simplifies employee equity management, especially when equity options vest at different times due to varying joining dates. When employees’ option exercise and stock selling behaviors vary significantly, real-time data is necessary for timely updates.

At Eqvista, we recognized the benefits of real-time data in equity management. This is why we have built an agile platform that provides real-time data and allows users to set up automated notifications to stakeholders. Contact our team to know more!