What’s A Cap Table And Why Do I Need One?
Knowing when you need a cap table and how to work one will help you. To hire talent and raise investment capital for your startup with purpose.
As a startup founder, there is so much to learn, across so many areas of a business, it can be quite daunting. And it’s not uncommon to come across founders who give blank stares when asked if they have a cap table.
What is a cap table?
A capitalisation table (or cap table) is a table providing an analysis of the founders’ and investors’ percentage of ownership and value of equity. Or put more simply; a list of who owns what in your startup.
The simplest tool to use to create your cap table is a spreadsheet.
Why do I need a cap table?
If you’re a founder without profitable revenue, chances are you will need to use the equity in the business as a currency. To attract a co-founder, fund growth and reward employees.
As soon as you think about finding a co-founder or the need to raise capital it’s time to prepare your cap table.
Creating a cap table should help you to understand the difference between your pre-and post-money valuation. Believe me, this is important! I’ve seen a number of founders think that an investment offer was pre-money and later realise that the offer is actually post-money! Ouch…
Having simple cap table drivers when preparing for your capital raise with will help. In the example below, the two founders, each own 100 shares (50%) in the company. Aligning their business case, the founders plan to raise $250,000 and set the valuation at $1M.
Founder Equity (Pre-Money)
Cap Table for the investment
This cap table shows drivers (yellow). $1M pre-money and $250,000 determine both the number of shares to issue and the % of the company being sold.
The capital raise will result in both founders diluting their share of the business. Note: After investment, both founders still own 100 shares each. The new investor is issued new shares.
Company Equity (Post-money)
If you don’t know about Cap Tables, don’t be embarrassed to ask someone for help. Get prepared for taking on your co-founder or an advisor. Prepare for implementing an ESS (employee share scheme), ESOP (employee share option plan). Prepare early for a capital raise, learn all you can about pre and post valuations.
Get started today! Feel free to grab a copy of the Cap Table used above to help you explore your equity for a capital raise. Let me know if you find it helpful in the comments below.