What is a Cap Table?
A cap table (or capitalization table) is a spreadsheet listing all of your company’s securities (stock, options, warrants, etc.) and who owns those securities. Cap tables provide a basic look into the “total pie” and each shareholder and option holder’s piece of that pie (basically who owns what and how much of your company). More detailed cap tables will include formulas that allow the company to model future transactions as well.
There’s no one-size-fits-all way to structure your cap table. Some provide only a general summary of the breakdown of ownership in a company, while others include extensive details about the individual holder, the type of securities held, issue dates, ownership percentages on a fully diluted basis, and other granular details.
When’s the Right Time to Build a Cap Table?
It’s relatively simple to build your cap table when you first launch your company, though in most cases it isn’t necessary at that point. Generally, you’ll only have founders holding common stock, and there won’t be much to include in the spreadsheet if you build it early on. As you grow, you may pursue outside financing (that is, money from investors outside of the company) or issue stock or options to key employees. That’s generally when a cap table becomes necessary because the company and its shareholders will want to have something to reference to review the relative percentage of ownership in the company. As the number of shareholders and the different types of securities the company has sold grows, it becomes more difficult to maintain a clear summary of the breakdown of ownership in your company without using a detailed cap table. Plugging in the pieces as you go can make the seemingly daunting task of building a cap table much easier.
Building a Cap Table for Your Company
I’ll repeat: there’s no one-size-fits-all way to structure your cap table. Luckily, there are several helpful tools available for building out your company’s cap table. Here’s a few to get you started building your company’s cap table, as well as a spreadsheet that allows you to compare different types of financing structures and how they’ll impact founder equity:
- InVigor’s Sample Cap Table
- Venture Hacks’ video on how to make a cap table
- Founder Math: Modelling Convertible Notes versus Priced Equity
Originally published at www.invigorlaw.com on February 24 2016.