Cap table, short for capitalization table, is a term used to define a spreadsheet that contains information about a startup company’s financials. The things included in this are common and preferred shares, warrants for said shares, ownership data, and the prices that investors have had to pay to acquire these securities. The document also contains information about the ownership percentages and the values of each ownership portion in the company. Furthermore, the document also provides information about how the shares may be diluted as time passes.
All About Company Finances
This is a vital document for any startup, so you need to create this even before you can come up with the incorporation documents for the company. In addition to the initial investor percentages and values, you also provide information about future funding sources and growth that the company may look at. These can be anything ranging from IPOs to acquisitions and mergers and some other types of transactions as well. As the company starts to operate, the document starts getting more and more complex with each potential addition.
Legal Aspects
A lot of people who are previously not familiar with cap tables do not know that it also contains a big chunk of legal documentation for the company. This can cover anything ranging from stock-related documents like issuance, cancelation, or transfers. In addition to that, you can also find information about things like debt-to-equity conversions and several other legal documents as well. It is the company’s executives’ responsibility to maintain this data consistently and write down everything relevant that happens since the formation of the company. In short, it is one of the most important documents for investors to refer to for observing both financial and legal aspects of the business in any transaction.
Making a Cap Table
Making a cap table when you are starting a new company is not that difficult at all. It takes limited information, but you simply need to make it to expand it in the future as and when needed. Most businesses use Microsoft Excel to create them and use a logical pattern to design the sheet. To help you understand it better, we are also sharing how you can create the needed rows and columns for adding required information to the table. Overall, the basic structure of the cap table has the types of securities present in the company on the x-axis and the names of investors on the y-axis.
While this simple method can work for many situations, using a spreadsheet template allows for easy expansion in the future if needed. The table in that template starts with the first row mentioning the company’s total shares. After that, the following rows show underneath it.
–Authorized shares
–Outstanding shares
–Non-issued shares
–Stock option share reservations
This information provides the necessary information that a cap table offers, and you can quickly expand it in the future when needed. You can also add another table that gives information about the shareholders and the details of each person’s shareholding and stock options. The two tables can be made on the same sheet and linked easily to update values everywhere on every event when the values change.
Conclusion
Knowing how to make cap tables is an excellent skill to have, and the guide provided here can easily help you with your table as well. Also, take a look at the default templates you can find in MS Excel or online. Better yet, if you came here thinking, “what is a cap table” then an online service like SUP would suit you quite well.
