A cap table, also known as a capitalization table, is a ledger detailing 100% of a company's shareholders' equity. The cap table provides information regarding the percentage of equity in a company held each individual, and how equity is diluted between the company's founders and the investors. Cap tables can be simple lists of who owns a company's securities, or complex lists containing formulas modelling the distribution of equity in future hypothetical transactions.
Cap tables include details related to common and preferred equity shares, warrants, and convertible equity. They are commonly used by startups, venture capitalists, and investments bankers to track how equity is diluted between a company's founders and investors during funding rounds. Cap tables allow companies to show the percentages of ownership in a company to investors, and help both parties negotiate funding deals more accurately and efficiently compared to not using a cap table. Startups without cap tables often have difficulties raising money due to a lack of transparency regarding who owns the startup.
Companies need to make sure they stay compliant with the equity laws of the countries they are operating in. Smaller companies may not need cap tables to ensure they are compliant, but as a company grows and their equity structures become more complex they may choose to create a cap table to stay organized and compliant.
Cap tables help investors, acquiring companies, and shareholders understand exactly what everyone is getting out of a transaction. Lawyers will often ask companies for their cap tables during an acquisition to help them settle acquisition deals. Cap tables allow lawyers to have all the information they need in one place for ensuring the company and investors know what they are getting and stay legally compliant such as company transactions, company valuations at various points in time, sale agreements, options agreements, shareholder agreements, and any other information regarding the ownership of the company.
The valuation section of a cap table provides information related to a company's valuation at a given time. Valuation sections will often have multiple sub-sections at different times in a company's life cycle such as the company's value and outstanding shares at the time of receiving funding (seed, series A, series B, etc...). Each sub-section detailing a funding round will contain the total value, price per share, # of shares, and percentage of ownership for the company's pre-money valuation, raised equity, and post-money valuation.
The ownership section of a cap table details the complete ownership in a company held by all shareholders. It organizes the total capital value, common shares, preferred shares, total shares, and % ownership held by each individual shareholder.
A company updates their cap table regularly to track how its equity is distributed every time the company sells new shares of existing securities, issues new shares of a security, increases their equity pool, or grants options to employees. Cap tables will also need updating when options expire, investors vest their options, an employee leaving the company terminates their options, or when an existing investor redeems, transfers, or sells their shares.
Basic cap tables can be made using software programs such as Microsoft Excel or Google Sheets. These programs are not designed specifically for the creation of cap tables, but can provide enough functionality for creating simple cap tables. For the creation of more advanced cap tables companies will usually choose to use cap table software. There are several companies offering software specifically for the creation of cap tables offering users more control and features when compared to basic spreadsheet software programs. Notable companies offering cap management software include: CapShare, Eqvista, Carta, Gust, Solium,and LTSE Equity.
