Understanding Cap Tables: A Comprehensive Guide for Early-Stage Companies
Introduction
Imagine your startup is a big pie. A cap table (short for capitalization table) shows how that pie is divided among all the people who own a piece. This is really important, especially when you're getting new money from investors.
What is a Cap Table?
A cap table is a list that tells you who owns parts of the company. It shows:
- Who owns shares (shareholders)
- How many shares they have (number of shares)
- What kind of shares they are (type of shares)
- How big their share is compared to the whole company (percentage ownership)
Why is a Cap Table important
- Seeing Who Owns What: It helps everyone know who has which shares.
- Getting New Money: Investors want to see how big their share will be and how it might change later.
- Making Decisions: It helps decide how to give out new shares without making everyone's shares too small.
- Following Rules: Keeping this list updated is often needed for legal reasons.
How to make a Cap Table for Early-Stage Companies
Here's how to make your own cap table:
- Start with the Founders' Shares: List the founders and their shares.
- Name of each founder
- Number of shares each founder has
- Type of shares (usually common stock)
- How big their share is (percentage ownership)
| Shareholder Name | Number of Shares | Type of Shares | Percentage Ownership |
|---|---|---|---|
| Founder A | 500,000 | Common | 50% |
| Founder B | 500,000 | Common | 50% |
- Add Pre-Seed investors: Next, list any early investors. These people might get their shares later when they convert their notes or SAFEs (Simple Agreement for Future Equity).
| Shareholder Name | Number of Shares (upon conversion) | Type of Shares | Percentage Ownership |
|---|---|---|---|
| Investor A | 100,000 | Convertible | 10% |
- Include Seed Round Investors: When you get more money from new investors, add them to the list. Update how many shares they get and how it changes the ownership.
Example:
| Shareholder Name | Number of Shares | Type of Shares | Percentage Ownership |
|---|---|---|---|
| Investor B | 200,000 | Preferred | 20% |
| Investor C | 100,000 | Preferred | 10% |
- Add Employee Stock Options: If you set aside some shares for future employees, list these too. This helps attract people to join your company.
Example:
| Shareholder Name | Number of Shares | Type of Shares | Percentage Ownership |
|---|---|---|---|
| Employee Stock Option Pool | 200,000 | Options | 10% |
- Update for Series A Round: When you get even more money from new investors in the Series A round, add them to the list and update the shares again.
Example:
| Shareholder Name | Number of Shares | Type of Shares | Percentage Ownership |
|---|---|---|---|
| Investor D | 300,000 | Preferred | 30% |
| Investor E | 150,000 | Preferred | 15% |
Tips for Keeping Your Cap Table Nice and Neat
- Keep it Updated: Always update your list when things change.
- Use Tools: There are software tools like Carta, Capshare, or Shareworks that can help make this easier.
- Ask for Help: Get help from legal and financial experts to make sure everything is correct.
Conclusion
A cap table is like a map of who owns what in your company. Keeping it up-to-date is super important for making good decisions, getting new money, and following the rules. By making and managing your cap table well, you can help your company grow and succeed.
Disclaimer
The information provided in this guide is for general informational purposes only and does not constitute legal or financial advice. We recommend consulting with qualified legal and financial professionals to address your specific needs and circumstances. We have not received compensation from any of the mentioned companies or products. We are not liable for any decisions made based on the information provided in this guide.
