What Is a Startup Cap Table?
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One of the first and most critical stages for those of you looking to form a startup is creating a capitalization – or ‘cap’ – table. In essence, a cap table is a summary of everyone who owns your company (aka your shareholders!). It will show your company’s equity ownership capitalization and is essential for you to have when making decisions relating to ownership of equity and market capitalization and value. In the following article, I’ll delve a little deeper to give you a concise yet thorough answer to the question on all of your minds; what is a cap table?
As I mentioned previously, a cap table is basically just a document showing who owns how much of your company. Information provided typically includes the name of the shareholder, the percentage of the company they own, the number of shares this percentage represents and the value a single share holds.
While this may sound simple at first, it’s important to stay vigilant when updating your cap table and make sure the information initially provided is accurate. This is mainly because as your company (hopefully) grows, your ownership structure will grow and evolve with it. An investor, or 2, or 7 may enter the picture, diluting shareholder’s existing stakes in the company. The onboarding of new employees, each with different stock options will further complicate the picture. It is the duty of your cap table to help you keep track of every incremental change in the shareholder makeup of your business.
So, now that you know a little more about what exactly a cap table is and why it’s so important, I have a few tips to help you create one too!
While it might sound obvious, I highly recommend when starting out, you should create your cap table in Excel, rather than writing it out on paper. For one, it will be virtually impossible for you to lose, but more importantly, will allow you to update and manipulate data points on your table with ease. There are even Excel cap table templates available online to help you format your table. As your company expands, it is important that you’ll start your cap table on a reliable, user-friendly platform like Excel.
However, when using Excel, it’s still you who will have to update the information for your cap table. As a result, companies have begun to offer online cap table management services, which will help you save hours of time. However, they still require manual data entry on your side, which can prove to be time-consuming.
Another route you could take if you are still unsure of exactly how to create a cap table would be to enroll in an online program to deepen your knowledge of venture economics. This may be a useful option for a lot of your new and prospective business owners to consider, as having a more comprehensive knowledge of cap tables and how to effectively create and manage them might better serve your interests in the long-term.
In summary, creating a cap table is one of the first things you must consider when starting a business. The success of your start-up relies upon the success of your cap table. In order to make sure you create an effective cap table, I suggested a few things, such as using Excel, exploring online cap table management services, or even choosing to enroll in an online program to gain a deeper understanding of cap tables. Whichever way you choose to go about creating a cap table, I hope this article has given you some insight into what exactly they entail and why they are such a critical element to the success of your startup!
