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Cap Table Management

Your capitalization table needs to be managed correctly. This is a legal document that serves as your company’s official equity ownership records.

And your cap table management, or lack of it, can influence a potential investor’s willingness to fund you.

Putting one together may be straightforward in theory, but cap tables are notorious for getting complicated, overwhelming, and confused.

You can’t just list out your founders’ shares and then leave it. Your cap table needs to be set up with the correct structure, actively managed, and optimized for investment needs.

There are a few cap table management areas that consistently trip people up: getting the initial structure right, keeping the table well-organized over time, and figuring out exactly what needs to go in.

Structuring Your Cap Table to Allow for Future Funding and Investors

Your cap table needs to be made with future funding, investors, and equity owners in mind.

This means including sections with columns relevant to future funding series, such as the amount of capital raised, new shareholders, shareholder investment, number of shares, and
ownership percent.

You can also include financial analysis formulas for modeling valuations, equity dilution, distribution waterfalls, and other financial scenarios.

This will allow you to easily perform financial analysis for the potential of any new ownership structures or investment influx.

You should be able to get insight at a glance.

How to Keep Your Cap Table Clean

Always keep your cap table current. It should be updated immediately after changes, not periodically or after a delay.

Anytime changes are made to your share distribution, go in and make those updates right

If you foresee a need for more advanced financial evaluation, add those models in before
something comes up.

Always proactively manage your cap table.

What You Need to Set Up in Your Cap Table

Cap tables can get fairly complex once you start adding in financial modeling. But the
fundamentals are simple. Your cap table’s main purpose is still to track your company’s equity ownership and securities.

You need to set it up for current shareholders, debtholders, potential security holders, securities, and outstanding promises.

Here’s how to set up your cap table spreadsheet:

1. Fill Out the Company Details

First, add in your basic company details and structuring.

Put your investors, shareholders, or other equity holders down the vertical y-axis. Put all the investment and ownership details along the x-axis.

You’ll need to include your initial ownership with every investor or shareholder, the number of total authorized shares, total shares held by shareholders, price of share investment, price per
share, unissued shares, share classes, and shares reserved for stock option plans.

You can also include sections that show your owner equity dilution.

Make sure to standardize your name spellings, using your share and stockholders’ correct legal names, as they appear on any legal id and security instruments. Don’t use shortened versions or nicknames.

2. Collect and Attach All Relevant Company Documents

The information within your cap table is legally established, proven, changed, and recorded by an assortment of documents.

These include your articles of incorporation, stock purchase agreements, notices of option
grants, stock issuances, stock transfers, share cancellations, conversion of debt to equity, etc.

Every relevant corporate and financial document needs to be tied to your cap table spreadsheet and updated along with it.

3. Issue Founders Their Shares

Your cap table needs to reflect all your founder’s financial equity agreements. If these aren’t
already finalized, now’s the time to have those last-minute discussions.

For each founder, include their number of shares (separated by common or preferred),ownership position, rights to buying future equity, vesting schedule, and voting percentage.

Remember to include all equity and security documentation as proof.

4. Create Your Employee’s Stocks Options

Key employees may initially be vested with stocks. These details should be included in your cap table.

But the cap table should also include allowances for vesting future employees with stock.
Reserve a portion of your equity for future hires.

This is your employee option pool with authorized or issued stocks.

5. Convertible Notes, Options, Warrant

Any convertible notes need to be included in your cap table, with their issue date, interest rate, discount rate, valuation cap, and maturity.

Any stock options, warrants, and rights that certain people have to purchase shares at a set price and time should also be included.

Include scenario modeling equations for your option and warrant pools to see what will happen to your shareholdings if all or some of the options are converted into shares.

6. Pre-seed Funding and Seed Funding

Prepare for funding ahead of time with columns for the investment amount, share quantity, and ownership percent.

Once funding comes in, simply update your ownership and equity stake information.

7. Funding: A, B, C

Prep your cap table for series funding by setting up clusters of columns for each series. This section should have columns for future shares, investment amount in dollars, and ownership percent.

Before funding, you can use these sections to evaluate different investment scenarios. You can quickly analyze share percentages to determine what you’re willing to part with.

8. Different Funding Rounds and How Your Cap Table Evolves

Your cap table is essential for understanding your company’s ownership dynamics and seeing how new funding will impact equity ownership.

Potential investors will also want to see who your equity owners are, what notes, options and warrants you have, and when these will convert.

Over time, you’ll need to add in more investors, class shares, formulas, option conversions, option expiry dates, option exercise windows, and scenario areas.

Spreading this information out over multiple sheets can help. But if an excel spreadsheet is getting too complicated, consider a managed software tool.

Cap Table Management is Active and Ongoing

Your cap table isn’t a one-and-done document. It evolves along with you and needs to be kept current. You’ll always have to actively manage it.

Not only is this a legal record, but your investments may also depend on it. Keep it clear,
accurate, and easily read at all times.

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