S&I Gazette #19: Understanding the cap table

Understanding and managing a capitalisation table (cap table) is essential. 

Whether you’re in the early stages of your venture or gearing up for significant growth, a well-maintained cap table is a cornerstone of financial clarity and strategic decision-making. 

Let's dive into what a cap table is, why it's crucial, and how to keep it updated.

What is a cap table?

A capitalisation table, commonly known as a cap table, is a spreadsheet that provides an overview of a company’s equity capitalisation. 

It lists all the company's securities—such as common shares, preferred shares, warrants, and convertible equity—along with who owns them. 

The cap table typically includes information about each shareholder, the number of shares or securities they hold, and the percentage of ownership this represents in the company.

Example of a cap table

This table shows that the founders collectively own 50% of the company, angel investors own 10%, Series A investors own 40%, and 5% is allocated to employee stock options.

Why is a cap table important?

1. Ownership clarity: A cap table provides a clear snapshot of who owns what in the company. 
2. Fundraising: When raising new rounds of funding, a cap table helps illustrate to potential investors the current ownership structure and how it will change post-investment. 
3. Equity management: For growing companies, managing employee stock options and equity grants is crucial. A cap table helps track the issuance and exercise of stock options, ensuring transparency and accuracy in employee compensation.
4. Strategic decisions: Founders and board members use the cap table to make informed strategic decisions about financing, acquisitions, and exits. 

Keeping your cap table updated

Given its importance, maintaining an up-to-date cap table is not just a best practice—it’s a necessity.

1. Regular updates: Update your cap table immediately after any equity-related transactions, such as issuing new shares, converting debt to equity, or granting stock options.
2. Use software tools: Consider using specialised cap table management software that automates updates and reduces the risk of errors compared to manual spreadsheets.
3. Periodic reviews: Conduct periodic reviews, especially before key events like fundraising rounds, board meetings, or financial audits, to ensure the accuracy of your cap table.
4. Professional assistance: Engage with legal and financial advisors to ensure that your cap table reflects all transactions accurately and complies with relevant regulations.

In conclusion, stay diligent and proactive with your cap table, and it will serve as a reliable foundation for your company's success.

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