What questions should be asked for the cap table? (FAQs)

Those unfamiliar with cap tables may have numerous questions but find it challenging to find adequate answers, given their current level of understanding. So here we have compiled a list of FAQs related to the cap table. 

Pointers:

• The cap table needs to be dynamic so that it may be regularly updated. When the company receives new funding
• Investors might use a cap table to aid in research and decision-making. By the use of capitalization tables, investors can gain insight into a company's financial health, assess its current standing, and predict its future performance.
• A cap table is permissible for a Limited Liability Corporation. If investors want to know the specifics of the company's financial standing as of a certain date, they can look at the cap table.

What is a cap table?

A capitalization table or cap table is a spreadsheet and the term for the chart that displays ownership, equity, dilution, and the value of equity for each round of investment the company has received. Startups, early-stage enterprises, seed-stage companies, and other businesses typically use a capitalization table to keep track of investments, ownership percentages, and financial participation. Consequently, the capitalization table is an essential tool for business owners to better understand their company's finances and manage their assets.

Why do businesses need a cap table?

Cap tables are commonly used by private corporations to offer information about their investors, shareholders, and market worth. The history of issuing new securities, ownership dilution, and employee stock options can be reviewed by founders and entrepreneurs, venture capitalists, angel investors, and financial analysts.

What should be included in a cap table?

Capitalization charts typically comprise a list of individuals or groups (founders, investors, common stockholders, etc.) on one axis and facts about what they possess (what type of securities, how many they own, when they invested, what percentage of the company they own, etc.) on the other. A cap table also displays the size of the company's option pool, common shares, preferred shares, outstanding shares, and SAFEs to provide a comprehensive view of the company's ownership structure.

How do you structure a cap table?

Learning the ins and outs of cap table creation is crucial. The information in a cap table is often organized in a tabular format, with columns for different items and rows for the overall table. Separate tabs should be used for information that is routinely reported about the business. The number of outstanding shares for the corporation should be listed in the first row. Then, fill in the blanks with the subsequent data:

• Authorized shares – Number of shares that the company is legally allowed to issue.
• Outstanding shares – Number of shares that have been held by shareholders.
• Unissued Shares – Number of shares that have not yet been issued.
• Shares reserved for stock option plan – Number of shares that are reserved for future hires.

Even though investors are often tracked in a different table, a cap table should still have the following data about each investor:

• Name of shareholder – Name of the shareholder.
• Number of shares held – Number of shares owned by each shareholder.
• Stock options – Stock options are owned by each shareholder.
• Fully diluted shares – The number of outstanding shares.
• Remaining options – Number of shares that have not yet been issued.

What is a fully diluted cap table?

A fully-diluted capitalization table is a variation of the capitalization table that displays the total number of outstanding shares for each security, as well as the totals from each convertible security if those were exercised. These convertible securities consist of stock options, convertible notes, compulsorily convertible debentures, and other shares, such as ESOPs, awaiting an exercise event.

Why do investors want a cap table?

The capitalization table displays each investor's interest in the company's equity capital, which is derived by multiplying the share price by the number of shares held.  A capitalization table assists investors in performing their due diligence and making investment decisions. Cap tables provide investors with an in-depth view of the company's financial status, allowing them to comprehend the current state of things and predict the company's future success.

What do investors look for in a cap table?

When examining a cap table, investors will look at the following factors to make an investment decision:

• How much money the company has raised.
• The total amount of equity that the company holds, including common, preferred, and warrants.
• How much money is being held back in the form of a working capital line?
• The details on how much money each investor has invested in the company from previous rounds of investment (see liquidity).
• Amount of capital that will be available to the company during future rounds of investment.

How do you manage a cap table?

Several providers of software for cap table management might help you manage your cap table more successfully. The company's management team or competent legal counsel must maintain and update the cap table. Seeking the help of competent legal counsel is advisable as they are responsible for ensuring that the cap table is accurate and up-to-date.

Use Eqvista for your cap table management!

For a more detailed explanation of the Cap table and its queries, check here. Consider giving Eqvista a shot now as an alternative to using an Excel spreadsheet. We use cutting-edge technologies to make keeping tabs on and manage your company's stock simple. Also, you'll have a means of maintaining interactions with your company's stockholders. Try it out for yourself!