Imagine a nerdy, bean counter-ish accountant nestled in dark corner wrestling with a spreadsheet. For some, this is what comes to mind when they think of the term “Cap Table.”
With the advancements taking place in the nascent world of technology a reframe of this mindset is emerging, one that promises to revolutionize the world of business capital and investments.
Cap Tables or “capitalization tables,” are a spreadsheet or digital table that highlights a company’s ownership percentages, level and value of equity for founders, investors, and other owners involved in investment rounds.
The purpose of this recordkeeping system is to provide a snapshot of all of the shareholders and security holders of a business. This tally is designed to ensure that the share count of a business or enterprise is equal to the total number of shares held by investors and other security holders such as management team members, founders, paid advisors, and rank-in-file staff.
Typically employed by startups and early-stage private companies, Cap Tables ideally will include a record of all equity ownership capital, including common and preferred equity shares and pricing, convertible equity, and warrants. A more in-depth table might integrate elements such as new funding sources, public offerings, mergers and acquisitions, and other sorts of enterprise related transactions.
Because companies are in a constant state of evolution and flux, traditional ways of ensuring that cap tables are continuously updated can be quite involved, particularly if it involves a large scale, rapidly growing business. The issuance of new securities, option pool increases, or the granting of options to employees is among the myriad events that can trigger a change to a capitalization table. Same with a termination event such as when employees exit a business or an investor redeems, transfers, or sells shares.
Harnessing “Cap Tables” As A Decision-making Tool”
There are countless decisions made over the life of a business that impact capitalization. By way of example, if new financing is being sought, a series of scenarios may be needed to assess key factors such as valuations. Or the recruitment of a new Chief Operating Officer where a candidate might request to review key information and metrics on the strategic position of the company. Bottom line, an accurate and up-to-date cap table appraisal allow good business decisions to be made thoughtfully and rapidly.
Here’s another key consideration: If your company is venture backed, you are likely under the auspices of “protective provisions” which require various approvals prior to taking certain actions.
By way of example, let’s say that your business is seeking new financing. Your charter probably requires that separate consents be obtained from a majority of Series A, B, and C shares.
In this scenario, your cap table should reflect the percentage of Series A and B shares (together) held by each individual holder as well as the Series C share percentage held by each holder. This will allow you to quickly gather the necessary consents for your new financing.
A Jump “START” To Cap Table Management
At EQUA Start our aim is to provide a simplified solution to capitalization tables, one that reduces the time, labor and friction around a stock transfer. Here, the computation and retention can be done using technology (versus by an error-prone human) resulting in a faster, cheaper and more accurate outcome.
We are also rapidly progressing toward providing our clients with new technology solutions that allow ownership transfers to take place in minutes at little or no cost. This signals a vast improvement over time and costs attributed to current best practices.
Currently, with the transfer of ownership, two signatures are required by the parties selling the equity, a process that can drag on for month amid busy schedules. With this new solution, digital signatures will be able to be captured allowing for the process and even settlement times to be accelerated.
Finally, EQUA Start’s solution promises to mitigate a great deal of the recordkeeping labor costs associated with transferring equity. With the prospect of recordkeeping being done on-chain, there is no cost attributed to humans.
In the end, cap tables through instant, online issuance and transfer of company stock without transfer fees signify a groundbreaking innovation for today’s rapidly emerging “ownership economy.” This move to instant records of ownership tied to work efforts and communications signifies EQUA Starts leading role in blazing a new future for business recordkeeping and document management.