Cap Tables Explained: Guide to Understanding Cap Tables

Board Effect

Capitalization tables—”cap tables” for those who don’t have time for extra syllables—map the balance of power in a company. If org charts are about people power , cap tables are about money power. In reality, however, cap tables are often far more complex. Let’s dive deeper into understanding cap tables; what they are, why (and to whom) they matter, and how they’re used. What is a cap table? Why do cap tables matter?

Startup Cap Table Management: What to Know as You Grow

Board Effect

Let’s not waste time listing everything startups could be doing to more effectively manage their cap tables. When it comes to cap table management in startup companies, it’s unrealistic to expect perfection. What does your cap table need to address at each stage of growth? The realistic demands of cap table management will increase as your business grows and matures—that much is a no-brainer. Defining Cap Tables.

Insiders

Sign Up for our Newsletter

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Model Cap Table

ithacaVC

I thought it might be useful to post up a model cap table ( Cap Table Model with Waterfall ). This cap table can be used by a pre-funded startup and then a financing can be layered in. They are simple, but critical to understanding how the cap table works and how valuable the cap table can be to your understanding of your stock holdings.

Does your company have a “dirty cap table?”

Berkonomics

How it happens. When you seek professional investors, whether organized angels or venture capitalists, one of the early questions you are asked is “How have you financed the business so far?” Investors love to see entrepreneurs who have used their own money to ignite their businesses.

Cap Table Clean Up

ithacaVC

When raising money from investors (angels or VC), it is critical to have a presentable and clean cap table. On a fully diluted pre-money basis, that would mean the option pool represents 14.5% (356,758/2,456,758) of the cap table. QUESTION #1: This leads to our cap table clean up question #1, namely is that the right allocation? Too much convertible debt on your cap table is a pain in the butt to deal with as it will drive down your valuation.

Founders – Use Your Down Round To Clean Up Your Cap Table

Feld Thoughts

“If you need to clean up your own cap table first – while very hard to do – it will make outside funding easier” Again, go read the post now – I’ll wait. Often, there will be asymmetry between them with your new liquidation preferences having a multiple on them where they participate for a while up to a cap. Deal with reality as a founder as well as an investor group and avoid this complexity – just clean up your cap table instead.

Introducing the Cap Table and Hiring the CTO

Feld Thoughts

As Finance Fridays continues, we are introducing the concept of the Cap Table. This week they set out to create their cap table and hire a CTO. Rather, it gets recorded in a document called the Capitalization Table (or “Cap Table”), which shows the ownership stake each person or entity has in the business. Time to update the cap table. When you read the cap table, think of it as a series of events that add new columns to the right.

Gust Launches Comprehensive Equity Management Platform for Cap Table Management and 409A Valuations

Gust

The post Gust Launches Comprehensive Equity Management Platform for Cap Table Management and 409A Valuations appeared first on The Gust Blog. Gust News Starting Your Company 409A valuations cap table management equity managementGust announces acquisitions of Sharewave and Preferred Return; creates the most robust and affordable equity management solution for early-stage startups.

Beware the “dirty cap table.”

Berkonomics

When you seek professional investors, whether organized angels or venture capitalists, one of the early questions you are asked is “How have you financed the business so far?” Investors love to see entrepreneurs who have used their own money to ignite their businesses. But often, entrepreneurs turn to others for initial capital. Describing that capital using the phrase “friends, family and fools,” or “FFF,” has become as common as to be trite.

The “reverse” pitch: Who should you have on your cap table?

Version One Ventures

How do you decide who you should have in your cap table? The post The “reverse” pitch: Who should you have on your cap table? When we think about pitches, most of the focus is on entrepreneurs pitching investors for capital. But VC can be competitive, particularly for interesting deals, and in many cases, the pitch meeting is a two-way street. Some of the best later-stage investors walk founders through an institutionalized “reverse” pitch.

That convert you raised last year is a part of your cap table

VC Adventure

This is typically reflected on cap tables in a completely separate tab to the spreadsheet that shows the debt total by investor and then some kind of interest calculation. Of course many entrepreneurs naturally focus on the main tab of their cap table spreadsheet that shows ownership by founder, investor, etc and for them this is the starting point of negotiating a round. This is especially true when the round price is significantly higher than the convert cap.

Reblog – Finance Fridays (Introducing the Cap Table and CTO)

ithacaVC

Here is the latest edition of Finance Fridays from Brad Feld called “Introducing the Cap Table and CTO” Every startup needs someone to be in charge of the Cap Table. When I was General Counsel at a tech company during the 1999 bubble times, I kept the company’s Cap Table. And now as a VC, I keep the Cap Table for a few of the company’s for which I am a board member. should have its own tab on the Cap Table.

That convert you raised last year is a part of your cap table

VC Adventure

This is typically reflected on cap tables in a completely separate tab to the spreadsheet that shows the debt total by investor and then some kind of interest calculation. Of course many entrepreneurs naturally focus on the main tab of their cap table spreadsheet that shows ownership by founder, investor, etc and for them this is the starting point of negotiating a round. This is especially true when the round price is significantly higher than the convert cap.

How I closed a round with 7 Investors and Survived [Guest post]

VC Cafe

101 funding Soomla Yaniv Nizan cap table Eyeview VC Funding is never easy. Even when you hear stories about entrepreneurs who walk out of a VC with a personal check from the managing director, it is usually after 6 months of pitching and hearing ''no''. This is the story by Yaniv Nizan from Soomla, who raised a round from 7 investors and lived to tell the tale. [[ This is a content summary only. Visit my website for full links, other content, and more! ]].

What is the Definition of a Seed Round or an A Round?

Gust

It is less about actual money and more about structure of your Cap Table. Invested Interests cap table venture capital Marc Andreessen kicked off another great debate on Twitter last night, one that I’ve been talking about incessantly in private circles for the past 2-3 years – what actually IS the definition of a seed vs. A-round. Cautionary note: No competent VC is actually fooled when you show up after raising $6M in seed financing and say you’re now raising an A!

Great, Simple Cap Table Tool for Startups from SMARTASSET

Scalable Startup

One of the top 3 to 5 worries when launching a startup is is “Who gets how much stock upon start or joining? Founders, Co-Founders, next employees, Investors, Etc. The founders of SmartAsset went through this process and decided to open it up to the world. These guys put together something very cool and it follows the “Give before you get” rule. They call it STARTUP ECONOMICS. Here it is… https://www.smartasset.com/infographic/startup.

3.5 Notes From Our Most Substantial Venture Exit So Far

Hunter Walker

I strongly believe the detailed story of the company’s success is the founders’ one to tell if they choose to do so, but at the risk of excessive inside baseball, I’ll share my perspectives from the cap table. Aligned Cap Tables Are a Godsend: Especially when the founders are considering an early acquisition, aligned cap tables are a godsend.

Why you should never have a data room — the most counter-intuitive fund-raising advice you’ll ever…

Both Sides of the Table

Your historical trading information including financials and a “customer file” which shows the history of your transactions so that investors can run “cohort” analyses Customer reference, personal references, key team members, compensation, cap table, stock option plan, etc. Can you please send us your certificate of incorporation, your Cap Table, your 3-year P&L and last year’s historical trading information? Why you should never have a data room?—?the

How Venture Capital Firms Work, for Entrepreneurs and Startups

OnlyOnce

I redacted our cap table and pictures of our VCs, but otherwise, feel free to use it with your own management team, or even your whole company. A couple of months ago, I was doing an internal lunch & learn for senior managers, and the topic came up as to “how do our VC firms work?”

The Version One Anti-Portfolio – the opportunities we missed…

Version One Ventures

Carta went on to become the standard for cap table management and is a unicorn many times over. . Bessemer started the idea of the “anti-portfolio” – the companies that you passed on, but ended up doing very, very well. .

Should you include a Series A investor in your seed round?

Version One Ventures

One of the most important decisions for a founder of an early stage company is deciding who should be on the cap table. Other A funds look to invest in seed rounds as a way to get a seat at the table, in order to have more options for a later round. in order to have a seat at the table for the next round. That’s why it’s critical to understand a the fund’s underlying philosophy on seed: is it true ownership or just a seat at the table? .

Tiny Checks

This is going to be BIG.

On the other hand, some people try and pad the cap table with a bunch of big names or industry vets, even if their check size is small, just to build the network. Maybe it’s an e-mail or maybe it’s just a quarterly phone call that everyone on the cap table can dial-in to. Small investors are people, too—and there’s no upside to having a bunch of your cap table feel negatively in any way about the company.

Oh S**t, Your VC Just Quit Her Fund! What a Good CEO Should Do Next.

Hunter Walker

All the disruption can be pretty jarring to an entrepreneur, especially in situations where the exiting partner represents the top line on your cap table. After that, there’s often enough people around the table to manage the loss/transition of a GP/Board Member (even if it sucks). You’ll often need the support – both structurally and symbolically – of some other investors on the cap table to make the case for some of the ideas below to work.

“I wanted to do the deal but i couldn’t convince my partners” isn’t an Explanation, it’s an Excuse

Hunter Walker

When I’m on the cap table I can help a founder navigate this to try and avoid going the distance with a potential investor. While this hasn’t happened to any of our portfolio CEOs in a while, there’s one reason for a VC passing on a funding round that just sets me off: “I wanted to do the deal but couldn’t convince my partners.” ” This isn’t an explanation, it’s an excuse. Photo by Andre Guerra on Unsplash.

The Uber that Never Was

This is going to be BIG.

I have a portfolio where 50% of the investments have founders that come from diverse backgrounds—and yes, I want them to get money from all of the still-active funds on Uber’s cap table that benefitted from the IPO. So, the extent to which any one fund will call out the other funds on the cap table that sat quietly on the sidelines for three years after Sarah Lacy called the company out in 2014 is going to be somewhat limited.

What Happens When A Founder Wants To Stop Versus Pivot?

Hunter Walker

When they’re at seed stage, we’re deferring to the founders’ decisions but also trying to help them understand the challenges associated with a hard pivot if their cap table isn’t supportive of the direction. Fred Wilson’s ‘ Pivot or Fail ‘ post earlier this week was especially timely for me.

Walker Twitter Highlights: August 13th – September 15

Scott Edward Walker

Solid post for young founders=> Cap Tables, Share Structures, Valuations, Oh My! I’m using Twitter as a form of micro-blogging to share interesting articles, blog posts and video clips relating to startups, entrepreneurship and legal issues. Below are my four most popular tweets for the past month. Cheers, Scott. Top 4 Tweets. A Case Study of Early-Stage Funding [link]. Determination is the most important thing.”

“Convince Me” said the Investor. “No” said the Founder.

Hunter Walker

This was a man who, despite agreeing to take the meeting, established within the first few minutes of their conversation that he wasn’t someone who was likely to end up on her cap table and even more importantly, probably someone she didn’t want there. It’s in a founder’s natural disposition to want to convince people of their point of view.

So What is The Right Level of Burn Rate for a Startup These Days?

Both Sides of the Table

If on the other hand we have committed $10 million and if you don’t have 3 other investors around the table and if you’re burning $800k / month (implying you need $10 million more to fund one-year’s operations or nearly $15 million to fund 18 months) – we’re simply “ over our skis ” in order to help you because we wouldn’t put $25 million in one company at our size fund. How Complicated is Your Cap Table?

One Book Every Entrepreneur and VC Should Own

Both Sides of the Table

To this day I’m still surprised how few CEOs really understand the differences between 2x liquidation preference and a liquidation preference with a 2x cap. Or what “flat spots&# on a cap table are. It goes far beyond any other book I’ve seen on the topic in helping you understand the key terms, plan the negotiation and understand the motives of the various actors at the table. This article originally ran on TechCrunch.

The Rainy Day Fund of Reputation

This is going to be BIG.

What happens when a founder has that rare wealth of riches when they're choosing who they're going to allow onto their cap table? The tables turn and the one being pitched to becomes the one pitching. Every time you slip an obnoxious term into a cap table, or take six positive meetings before ultimately passing for a reason that should have come out in meaning one, you're debiting your rep.

Creative Common Stock

ithacaVC

I am a huge fan of simple cap tables. A cap table is a written record (in Excel, for example) of who owns stock in your company. One rule of simple cap tables is to issue “normal” stock to founders (common stock only) and investors (typically preferred stock, but sometimes common stock to early friends and family). It lists every owner out by amount owned, type of stock (common or preferred), and date purchased.

As an investor, what are the most important items that a startup must have for you to invest?

Gust

Viable business structure and cap table. Large and growing market. Real domain expertise. Provable product need. Scalable business model. Competitive advantage. Platform/partnership/bizd ev/API strategy. External validation (ideally traction and/or passionate customers). Reasonable valuation. Proven team (tech/product/design/mark eting/sales/domain/etc.). But most important of all , it must have an entrepreneur on whom I’m willing to bet.

What Scales?

This is going to be BIG.

Yet, as cash friendly as Slack could be--where it could easily have Kickstarter or Craigslist-like cashflow to cap table like ratios, it is still raising hundreds of millions of dollars. I've got a great deal for you. It requires you to set up the operation from scratch in every city--and it probably only works in cities. There is a ton of regulatory risk. Right now the market is pretty much only high net worth individuals. You only invest in scalable businesses?

The Market Holds The Best Fundraising Advice

Haystack

I am only participating in structured rounds where I know the other 1-2 investors around the table. I can’t afford — workwise or simply emotionally — to have a CEO I work with getting advice from 25 people all the time, because I now know from investment experience what happens in those situations: The noise of the cap table drowns out the signal from reality.].

Startups Should Be Responsible for Explaining Equity to New Employees

View from Seed

This is not an argument for circulating the entire cap table or compensation calendar. When someone goes to work for a larger corporation or public company, the compensation package generally includes an annual salary, a performance bonus or commission plan, 401(k), and health insurance.

Equity 234

What Do You Want From Me Besides Capital?

Hunter Walker

Who will hold the accountable to building something they’re proud of but remember we sit on the cap table, not the org chart. “Venture Industry Advocacy” – Ears to the market, help with the next fundraise, assist with optimizing the rest of the cap table – before and after closing, generally the “be a translator and facilitator between us and the capital markets.”

Know When Conceding on a Point is Better Than Being Right

Both Sides of the Table

The acquiring company wants 100% of the proceeds to go to founders whatever the cap table says because buyers care way more about incentivizing and locking in founders than they do about VC returns or legal provisions to protect VCs. Last Wednesday I had coffee with an old friend and former colleague. We haven’t worked together in a while and were reminiscing about the old days.

As a Seed Investor, Do I Want Softbank to Invest In My Best Companies Or Not?

Hunter Walker

Early Stage Hybrid Buyout a la Wag, Brandless, DoorDash : Softbank becomes the largest investor on the cap table, sometimes clears out the Board, and, if reporting is correct, doesn’t broadly offer secondary to earlier investors. Oh boy, conference season in the venture world and one enduring question this year has been “What to do about the Vision Fund?”

IRR 101

That Day When Your VC Tells You She Is Leaving Her Firm

Feld Thoughts

Hunter has a great lead in: “ Here’s where I think founders and cap tables should be more proactive. There are some blog posts that every entrepreneur should read. Hunter Walk at Homebrew recently wrote one of them. It’s titled Oh S**t, Your VC Just Quit Her Fund! What a Good CEO Should Do Next. He covers three cases: Bullish aka You Are Absolutely Killing It Written You Off Too Early To Tell – Some Good Stuff, Some Challenges But A Lot To Do.

Pitch Deck Month: The “Ask” Slide

View from Seed

To provide relevant perspective, listing past convertible note(s) and/or equity financing(s) including total round size and valuation (caps) is helpful. Previous venture firms’ specific involvement on the cap table should be noted here, though. *This post is part of our “pitch deck” series where we dissect the seed stage pitch deck and discuss the ideal flow for a pitch. You can read the rest of the posts in the series by clicking here *.

The Resetting of the Startup Industry

Both Sides of the Table

If you need to clean up your own cap table first – while very hard to do – it will make outside funding easier. Much has changed in the past four months of the technology startup world and how outsiders value the business. Of course it’s too early to predict whether this is a trend or an aberration but the smartest people I know in the industry are predicting the former.

Dear elizy: How should I split equity with my co-founders?  And how will that affect raising a seed round?

Hippoland

Secondly, even if you are ok with either arrangement you have proposed, it is a major red flag to investors to have much of the cap table locked up with dead-beat co-founders / professors / advisors who are not working day-to-day on the company. You will have tremendous difficulty raising money with this kind of cap table, and investors will make you restructure your cap table. Dear elizy : I started a company in school with two co-founders.