A cap table is a capitalization table.<\/p>\n
Oh, sorry, were you looking for more? Were you looking for what a cap table is, why you need it, and why it could very well be the single most important part of your startup? If so, you came to the right place. Below, we\u2019ve answered the three most common questions we hear from new entrepreneurs and founders about cap tables.<\/p>\n
A cap table is simply a document that records the answers to two simple questions: who and how much. Who <\/em>has ownership in your company, and how much <\/em>do they each own. When a company is young, and at its most basic, a cap table is often an Excel spreadsheet, with assorted documents attached. Which is fine to start with. But if the cap table isn\u2019t quickly transformed into something more dynamic and accurate, then the young startup is most likely doomed to stay young and basic.<\/p>\n That\u2019s because you don\u2019t just need a cap table \u2013 you need an accurate, reliable, and dynamic cap table. But before we get into that, let\u2019s look at why you need a cap table in the first place.<\/p>\n Of course, you need a cap table. Startups don\u2019t generate much money for quite some time, so share ownership is the most valuable asset you can offer when fundraising. When an investor invests in you, they want shares in return. When you give them shares, you need to record how many shares you have distributed, whom you have distributed them to, and how much each share and share ownership is worth.<\/p>\n Each new round of investments and share ownership has an effect on the existing share ownership \u2013 it changes the valuation and dilution. With each round, and each new investor, the share ownership starts becoming more and more complex \u2013 not to mention, legally binding. If you don\u2019t have a cap table, you can\u2019t do this. Period.<\/p>\n If your startup ever wants to get funded \u2013 and it does \u2013 you don’t just need a cap table. You need a strong cap table. When an investor looks at a startup as a prospective investment, the first thing they will do is ask to look at the cap table. You can have the best idea, the best branding, the most exciting business plan that Silicon Valley has ever seen \u2013 it won\u2019t matter if you have a bad cap table. Why do investors care so much?<\/p>\n Well, it tells them two things. A clean and precise cap table demonstrates a professional attitude toward the business. But more importantly, the cap table shows the investor how the ownership is distributed and\/or diluted \u2013 which directly affects their potential return on investment, and the sustainability of your company.<\/p>\n How good an investment you are \u2013 that\u2019s pretty important to a person whose job title is literally: investor. <\/em><\/p>\n \u00a0<\/em>Hopefully, this overview has impressed on you the importance of cap tables, and why you can\u2019t afford to wait. Any mistakes that currently exist in your cap table are only going to get much larger, and much more financially crippling to fix. And that\u2019s if they are even an issue that can <\/em>be fixed. If you take a bad investment offer, for example, you can\u2019t fix that<\/em>.<\/p>\n But there\u2019s good news, and it\u2019s because of cap tables. A great cap table management software tool will let you model scenarios of different investments, so you can choose the best offer. It will give you the most professional looking cap table possible and will reassure investors that your share ownership is accurate.<\/p>\n To read more about Cap Table Management and how we can help you, please click here<\/a>.<\/em><\/p>\nWhy do I need a cap table?<\/h2>\n
Why is a cap table important?<\/h2>\n