A startup cap table, or capitalization table, is a document that tracks the ownership of a company’s equity.
Most first-time founders and non-investor-backed founders are clueless about it.
So, today, I’m going to give you a cap table for dummies lesson 🙂
In less than 5 minutes today you will get:
1. What is a startup cap table?
2. How to build and track your cap table
Let’s go 🚀
What is startup cap table management?
Your startup’s cap table shows who owns what shares, how many shares they own, and what percentage of the company they own. The cap table is an important tool for you because it helps you track the company’s progress and make decisions about future fundraising.
The cap table is typically created by the startup’s founders and is updated as the company raises money and grants equity to employees or other stakeholders. Eventually, as you grow, you hand the upkeep and maintenance to your corporate counsel.
The cap table MUST be kept accurate and up-to-date, as it is a valuable reference for investors, employees, and the company’s management team. You can get sued if you make a mistake here!
What is the value of tracking your cap table?
- It provides a clear understanding of who owns what shares and how much of the company they own.
- It can help to avoid disputes between shareholders.
- It can be used to calculate the company’s valuation.
- It can be used to issue new shares or options.
If you are just starting up, it is important to create a cap table as soon as possible. This will help you to keep track of your company’s ownership and make informed decisions about its future.
How to build and track your cap table
Your cap table should capture the following critical information:
- The name of each shareholder
- The number of shares owned by each shareholder
- The type of shares owned by each shareholder (common stock, preferred stock, etc.)
- The value of each share
- The percentage of the company owned by each shareholder
- (bonus) It should allow you to do scenario modeling to understand dilution as a function of new investments
Top 4 cap table management challenges
- Complexity: The cap table can become complex as the company raises more money and grants equity to employees or other stakeholders. This can make it difficult to keep the cap table accurate and up-to-date.
- Accuracy: It is important to keep the cap table accurate and up-to-date to avoid disputes between shareholders. However, this can be difficult to do, especially if the cap table is not properly managed.
- Security: The cap table contains sensitive information about the company’s ownership structure. It is important to keep the cap table secure to prevent unauthorized access.
- Cost: There are a number of tools and services available to help with cap table management. However, these tools and services can be expensive, especially for startups with limited resources.
What cap table management tool should you use?
- Spreadsheets (Excel / Google Sheets): Yes it’s free, but I absolutely do not recommend using spreadsheets.
- Carta: This is the most popular tool for tracking your cap table and it’s free for up to 25 stakeholders. It’s what I used and recommend to everyone.
- Pulley: Similar to Carta but not as popular. It’s free for up to 25 stakeholders. I have never used it.
