A cap table acts as the place of record for the equity-based transactions of a company. In its simplified form, it is a list of a company’s shares and who holds them. They are typically used by startups to analyse a company’s equity capitalisation.
Formally known as capitalisation table, it is an extremely helpful document that outlines in a single location your company’s ownership. It will prove useful when making critical decisions, and investors will usually want to review it to gain a quick sense of the current equity arrangements in place.
What is Equity Capitalisation?
Equity capital is funds paid into a business by investors in exchange for common or preferred stock, representing the core funding of a business to which debt funding may be added. In contrast to debt capital, the invested money is not repaid to the investor in the normal course of business.
What does the cap table include?
Essentially, the cap table will identify your company’s securities, how much investors paid for them and each investor’s percentage of ownership in the company. Thus, laying out clearly “who owns what”. In some companies, their cap tables may be more complex and detailed in nature including formulas that model out various hypothetical transactions and providing detail on the holdings of each individual owner and each individual type of security.
There is no right way format for a cap table, but can be customised depending on what questions your company is seeking to answer.
A cap table will generally include:
- Shareholder name as it appears on the security
- Date of issuance
- Numbers of shares or units issues
- The company’s percentages of ownership (ownership stakes)
- Types of shares
- Equity dilution
- The value of equity in each round of investment by founders, investors, and other
How is it a useful document?
Cap tables are fundamental in helping identify who owns what at each stage of the business in order to understand your company’s ownership, control, and potential for dilution. In relation to startups, where voting agreement among both common and preferred shares are required, a cap table indicates who needs to sign off on major company decisions.
The table will be referred to in order to understand how decisions impact the equity structure of a company. For example, in a decision concerning the expansion of the employee option pool the table can be used to see the impact it will have on your shareholder group.
Using a cap table at the formation of your business forces conversations concerning initial equity distributions to be discussed, potentially avoiding future disputes on the matter.
Keep it Organised…
Even though a cap table is not a legal document, it is an effective way to collect, organise and analyse data pertaining to your company’s ownership. Usually a cap table is a spreadsheet, although there are more dynamic ways of keeping track of share distribution, eg Cake’s investor apps. Which ever way you decide to format your cap table we always recommend keeping it concise and updated.