The Startup's Founder Guide to Cap Table | Jordensky

A capitalization table, or cap table as it is more frequently called, is necessary for any startup. But for startup owners, setting up and maintaining a cap table may be a difficult task because they entail so many complex financial jargon. Even if a member of the founding team or your legal team is already in charge of managing your startup cap table, you might not fully understand how it operates or what function it serves in your company's finances.

What is a Startup Cap Table?

A startup capitalization table is a list of all the shareholders of your company, including the founders, angel investors, venture capitalists, and any employee or advisors that are involved in the business plan and own shares in your company. The ownership structure of your firm is displayed in the cap table, which also analyses the percentage of ownership, equity dilution, and value of equity at each round of funding for your business.

The cap table is a dynamic resource: Your cap table has to be updated to account for changes as your startup expands and moves through fundraising rounds. Each new fundraising round should be disclosed, as well as each new company valuation.
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Some companies begin by creating their own cap tables using spreadsheet software, while others use templates as a starting point for their cap tables (Y Combinator provides a well-liked (and free!) cap table template). Most businesses quickly learn, though, that using cap table management tools like Carta or Captable.io makes the procedure quicker and more precise. The legal documentation pertaining to the activities recorded in your cap table, such as stock issuances, transfers, cancellations, option exercises, debt conversions to equity, and more, can also be organised with the aid of cap table management software. ‍

Why every Startup needs a Cap Table

Some entrepreneurs believe they don't need a cap table right now because their company is just getting off the ground. It's still crucial to have a cap table for your startup to show how much ownership each founder owns, even if you don't yet have any investors and the founding team holds 100% of the equity. At a later time, when you're speaking to potential investors, you need to have a detailed description of the ownership opportunities you can provide.

The equity part of your balance sheet and other financial documents, such as the cap table for your startup, both rely heavily on data from this document. By comparing incoming investment payments to the quantities specified in the cap table, your finance firm may classify transactions correctly by having access to an accurate cap table.

What information does a Cap Table include?

Startup cap tables can be as intricate as the company requires, but they all need to contain the same fundamental shareholder data:

• Name
• The number and type of stocks they own from each funding round
• The value of those stocks
• The proportion of the company they own

Most businesses reserve 10 to 20 percent of the total shares as stock options in order to attract or compensate future key employees, in addition to the shares owned by the founders or investors. The number of stock options that have already been exercised and the option pool are also included in the cap table to provide a complete view of the company's ownership (the number of shares still available to allot to future employees or advisors).

‍Glossary Of Key Cap Table Terms

• Pre-Money Valuation— the company's worth prior to taking into account the value that was added during the most recent investment round.
• Post-Money Valuation— the company's valuation after taking into account the benefits of the most recent fundraising round.
• Common stocks (or common shares)— The type of stock that is often given to founders and employees when a firm is founded and is the standard stock that is created at that time.
• Preferred Stocks (or Preferred Shares)— stock that most investors purchase. Preferred stock, also known as preferred shares, is a reduced risk investment option since preferred shareholders would receive their money before common stockholders in the event that your firm is liquidated or pays dividends.
• Options— The ability to purchase shares at a certain price is a stock option. The quantity of stock options in the pool can be decreased by an employee choosing to exercise a stock option and purchase shares.
• Convertible Notes— A type of debt: Convertible notes exchange investment up front for the right to redeem shares when the company hits an agreed milestone. Convertible notes are a common way for startups to raise money in early funding stages.
• SAFE— Simple Equity Settlement Agreement. SAFE substitutes an initial investment for the promise of future equity, much as convertible notes. But SAFE doesn't have a maturity period, and it doesn't pay interest, unlike convertible notes.
• Outstanding Ownership (or outstanding shares)— The proportion of the business that each investor or founder owns out of the total number of shares that have been issued, including common and preferred stock in their entirety but excluding shares that have not yet been issued as stock options.
• Fully Diluted Ownership— The portion of the business that each investor or founder owns in terms of all securities types—including common stocks, preferred stocks, available stock options, convertible notes, and SAFEs—out of all outstanding securities.

Sample Cap Table Format

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