A capitalization table, sometimes referred to as a cap table for short, is an important tool used by start-ups and investors to record and calculate the percentage of ownership and investment in a company by each founding member and subsequent investor. They can range from simple tracking spreadsheets to complex tables and sheets that use a number of different formulas to produce pro forma financial projections.
At a glance, a comprehensive cap table should make it easy to see what percentage of a company is being offered to a venture capitalist or outside investment company in exchange for their investment.
This allows founders and investors to understand what they are getting for their investment, and how future investment or stock creation may dilute their stake in the company.
It can also help investors to ascertain what percentage of ownership they would receive for different levels of investment.
It’s easy to see why creating a capitalization table for your start-up is important. Here are four ways to create a cap table.
1. Using A Spreadsheet Create a Capitalization Table From Scratch
Obviously, this is going to be the most difficult option, because you’ll be starting with nothing. A basic spreadsheet with columns for holders, founding shares, ownership percentages, and capital invested is easy enough and can work at first, but you may find that you’ll soon grow out of it.
If you’re particularly great at spreadsheets and love a challenge, this can be an exciting option because it allows you to customize your sheet to your needs. However, most start-ups have enough to do without trying to reinvent the wheel.
Note: If you’re going to utilize this option most experts recommend using Excel rather than Google Sheets. While Google Sheets is gaining in popularity, it lacks some of the more complicated features and formulas available on Excel.
2. Cap Table Software
If you’re allergic to spreadsheets and dread the idea of spending time continuously updating your cap table then equity or cap table management software might be the right option for your start-up. Cap table software can centralize all of your fundraising on to one system, and do the complex calculations for you.
The downside of bringing in specific software can of course be the cost of maintaining the software subscription, and the time spent learning a new system. If you’re operating on thin margins while you build your start-up you may want to forgo this option for now.
3. Use a Free Template
There are plenty of capitalization table templates available for free on start-up and finance websites across the internet. These free templates can give you a good start and provide you with a basic template to build off of.
The quality of templates will vary depending on the source, and it may take some time to find one that suits your needs, but this can be a viable option for those who don’t want to start from scratch but need something cost-efficient.
4. Work with a Comprehensive Startup Company
Look for a company that offers a range of services to help your startup. These companies employ experienced venture capitalist attorneys to help guide you through the start-up process with a range of services.
They will likely offer higher-end tailored capitalization table templates and educational services that can help you better understand what you need from a cap table even before you start. You’ll also learn how to get the most out of your cap table once you’ve got it up and running.
While these companies will also come with a cost it can be nice to have the support while getting your start-up off the ground.
A cap table can be an important part of your company’s early-stage growth, so it’s important to choose the option that’s right for you. No matter which option you choose, the most important part of a capitalization table is that it’s clear, concise, and meets your company’s needs.