What is a Cap Table? Creation & Management Guide

Cap table management for startups and early ventures is crucial for any business. This can be seen in the example that an emerging entrepreneur recently unlocked £650k funding in 2024.

The capitalization table includes every essential information related to the company’s ownership and allows investors to know everything they’re looking for on a sheet of paper. 

If you’re also starting a venture, create a cap table, as it will help you achieve exponential growth by attracting investors.

In this blog, we’ll explain everything you should know about cap table creation and management with potential cap table examples. 

What is a Capitalization Table

Capitalization Table, also known as Cap Table, refers to a documentation that outlines a company’s ownership structure and equity distribution.

It lists crucial information like shareholder’s names, types and number of shares held by them, and the price paid for those shares.

Overall, It represents the percentage of ownership of each shareholder in the company, the value of shares, and their dilution on time. 

The formation of cap table management for startups and companies is held in the early stages of the venture. It helps you know the actual value of the company at any point in its journey.

You can use it to make informed decisions regarding future fundraising efforts, initial public offerings, mergers, etc. 

How to Create a Cap Table

Follow the simple step-by-step cap table management guidelines mentioned below to create your own table. 

Step 1: First, decide who owns cap table management 

You must first decide who is going to own the cap table. In startups and early ventures, the table is generally managed by the founder or CEO.

As the company grows, multiple groups of stakeholders are also required to be managed, and companies also need to conduct more sophisticated analysis with the help of a cap table, including scenario modeling for future exits and liquidity events.

Hence, it later becomes the responsibility of senior finance leaders in the company, including the CFO (Chief Financial Officer) or VP (Vice President).

Step 2: Select the table format 

Once you know who is going to manage your capitalization table, you have to select the format of your table. Initially, startups and ventures generally preferred to use spreadsheets in the form of Excel or Google Sheets due to their simplicity.

To make things even more easy, you can download a template to quickly and easily start up your spreadsheet. 

Step 3: Leverage an equity management platform 

Instead of using the spreadsheet, you can also directly opt for the cap table management software. It allows you to have your data secured and prevent any data entry errors.

Using specialized software is mostly preferred at the time of scaling when you hire more employees and raise for funding rounds.

Being familiar with the software may allow your startup to save a lot of time and money later.  

Step 4: Setup and populate the table 

On the Y-axis, you have to list all the shareholders of your company, including founders, investors, and employees. While on the X-axis, you have to list different securities like common stocks, preferred stocks, options, etc.

For each shareholder and security, you have to clearly mention the number of shares owned, the exercise price for options, and the price per share.

In addition to this, you also have to mention the pre-money valuation of the company, investment amount, post-money valuation of the company, fully diluted shares, and ownership percentages. 

Step 5: Form separate groups for your stakeholders

In your company’s capitalization table, you must clearly segment the different groups of owners.

For example, you should properly differentiate the column of employees with common shares or stock options and an investors’ column with preferred shares.   

Step 6: Consider the team members who belong to different countries 

Lastly, you also have to take care of the shares and share options owned by the employees belonging to different countries.

For instance, the share options in the US or UK market will be treated as virtual or phantom shares in Germany. In such scenarios, you must establish a broad pool of employee shares and share options, broken down into a diverse share plan reflecting different types of equity grants.

Why Do Startups Need a Cap Table

Cap table management for startups and companies is of significant importance. 

• Simplify complex business structure: As companies grow, their ownership structures often become complex with new board members, employee stock options, and merger offers. A cap table tracks all information about founders, investors, and employees, including their stakes and rights. This helps prevent conflicts and confusion about ownership dilution.

• Facilitate investment decisions: A cap table helps startups track ownership, making it easier to make informed decisions about financing and investments. It’s crucial to know exactly how much of the company is owned by existing shareholders, especially when considering new funding.

• Discuss initial equity distributions: Founders must discuss initial equity distributions with investors and employees early on. These discussions involve breaking down the company’s equity to ensure clear and productive conversations from the start.

• Term sheet negotiations using simulations: Cap table management tools simplify term sheet negotiations and help in fundraising. By using the cap table, companies can understand potential equity changes at various valuations, aiding in better decision-making during funding rounds.

• To offer and manage equity: Cap table management is useful for startups and established companies that offer stock options to incentivize employees. It details how stock aligns with employee contributions and tracks stock performance over time, providing insights on issuance dates and values.

Overall, these are the importance of cap table management in a startup or early venture.

It will help you keep your business updated with all sensitive information. Implement a capitalization table within your business to organize the company data that is required for expansion. 

How Do You Maintain a Cap Table for Startups

As business grows with time, you have to constantly update the cap table of your company with essential information.

For instance, increased investment, more funding rounds, and increasing employees will significantly impact the totals mentioned within your table chart. You have to keep things up to date with the most relevant details. 

Listed below are some of the most relevant elements to keenly monitor and update in the capitalization table. 

• Valuation: When the stock price changes with time, make sure to update it with time. 
• Investors: More new investors add up in the company and you must add them to your cap table as well. It includes adding up new names, investment amounts, share certificates, and their address and contact number. 
• Ownership percentage: When the company share dilutes, the ownership percentages of founders, investors, and employees change with time. Make sure to update it in the table in a timely manner. 
• Reserve/restricted stocks: If you offer the stocks of your company to the employees, you have to update the number of shares while hiring. 
• Debt: Update the debt that has converted into equity. 
• Total outstanding shares: Update the total outstanding shares in the cap table. 
• Remaining authorized shares: Do not forget to update the table with the remaining authorized shares. 

As one of the effective cap table management strategies, you should assign a specified employee or team to manage your capitalization table.

Moreover, you can also take the help of a professional cap table startup or company whose specified software will allow you to manage your cap table efficiently and with automation.

How Does Cap Table Management Make a Difference to Investors? 

While applying financing rounds to potential investors, you have to present your company’s information in a clear and concise manner.

If you’re unable to represent your company’s accurate ownership percentage with other factual data, it will leave a negative impression on the investors and reduce your chances of getting funding.

Listed below are two major factors that you have to present to the investors. 

Exit Planning 

You have to carefully demonstrate your exit plan to all the shareholders.

Because an investor’s liquidation preferences can limit other shareholder’s financial outcomes at a valuation point, you might also be required to set up the accelerated vesting for employees based upon when exit takes place.

Taking a step further, you can also enroll in specialized software for the cap table management for startups and early ventures.

Therefore, a cap table makes it easy for investors to check on your company’s data and strategies and make informed decisions. 

Cap Tables are Constantly Changing

The capitalization table represents the company’s ownership structure. However, new investors enter into the board as your company passes through more funding rounds with time.

Moreover, you also have to change and evolve your company ownership pool when expanding internationally.

Simply put, a cap table acts as a dynamic document, which has to be kept updated to maintain informed financial decisions.  

Best Practices for Cap Table Management 

Here are some of the best practices of cap table management for startups and early ventures. Following these simple tips and tricks will allow you to maintain the cap table more efficiently. 

• You must update your cap table before and after every round of funding to mention the accurate changes in the ownership of the company because of new investors and additional shares issued. 
• Every startup or company has to conduct a periodic valuation to determine the fair market value of their shares. Make sure to instantly update your cap table after any valuation-related changes. 
• You also have to update the capitalization table after any significant employee equity event like promotion or termination to represent the changes in ownership. 
• Any changes coming into the ownership of a company due to investor updates, board meetings, or discussions have to be properly mentioned in the cap table. 
• The cap must be easy to read for the potential investors so that they can easily understand everything about our company. 

FAQs

Why do startups need cap tables?

A capitalization table is a legal documentation outlining the company’s ownership, stocks, options, and other securities. It helps startups and companies to make informed decisions for the fundraising rounds and attract investors.

How often should a cap table be updated?

A cap table must be updated every major incident that has a direct or indirect impact on the company’s ownership structure.

For instance, update the cap table at the time of funding rounds, employee events, investor events, etc. 

Can a cap table be used to value a company?

A cap table consists of the information regarding the ownership structure of the company.

However, it doesn’t typically represent the value of a company. To determine the valuation of a company, you have to leverage other methods like discounted cash flow analysis or comparable company analysis. 

A capitalization table can be taken as a snapshot outlining ownership stakes, stock options, and people involved in the critical decision-making of your company.

This blog will help you create a high-quality capitation table for your own company and help you ease your fundraising decisions and employee hiring.

Looking for any trustworthy and effective software to create and manage the cap table for your startup, you should reach out to CrossVal. Create your free account now.

Read more:

• Understanding Company Valuation: A Comprehensive Guide
• How to Start a VC Fund