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July 17, 2017

What Startups Need to Know About Cap Tables

Keeping track of ownership percentages and stock totals can seem simple when launching a new startup. A new startup may have a few founders with a few early investors and the math is relatively easy. However, as the company grows and considers bringing in more investors through multiple rounds of fundraising, keeping track of ownership and values can quickly become complicated. Capitalization tables (or cap tables) are used to simplify this process.

What Is A Cap Table?

A basic cap tables consists of:

  1. List of stakeholders: could be investors, founders, employees, or anyone else with securities
  2. Amount of securities owned by each stakeholder
  3. Value of securities owned by each stakeholder

The cap table provides a clear view into company ownership. As ownership data changes, the cap table must also change. Changes could include new funding rounds, new employees, terminated employees, investors transferring shares, etc. It is critical that entrepreneurs maintain and understand the cap table when considering bringing on new investment that dilutes founder ownership.

Cap Table Example

Suppose a startup has a pre-money valuation of $5,000,000. At this point, the founders have used their own resources to develop a product in which investors are interested. The cap table would look like:

Shares Ownership % Share Value
Common Stock
Joe Founder 2,000 50%  $2,500,000.00
Jane Founder 2,000 50%  $2,500,000.00
Total Common 4,000 50%  $5,000,000.00

The founders decide to offer a Series A round and bring in two investors for a total of $1,500,000 new invesment and brining the post-money valuation to $6,500,000. The cap table now looks like:

Shares Ownership % Share Value
Common Stock
Joe Founder 2,000 38.46%  $2,500,000
Jane Founder 2,000 38.46%  $2,500,000
Total Common 4,000 76.92%  $5,000,000

 

Series A
Shares Ownership % Share Value
Susan Investor 800 15.38% $1,000,000
Carl Investor 400  7.69%   $500,000
Total Series A 1200 23.08%  $1,500,000

This is a simple example. You can find freely available templates that cover more scenarios and track additional data.

 

 

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