What is Capitalization Table or Cap Table? — Fundraising Glossary with Cherry Pick Ventures
Under the Fundraising Glossary series, Cherry Pick ventures will demystify the jargon in raising funds from venture capital to make our fellow founder’s fundraising journey simpler.
In this article, we dive deeper into the term — Capitalization Table
What is the Capitalization Table?
The capitalization table (or Cap Table) is a representation of the company’s shareholder’s equity.
The cap table includes every ownership type like preferred equity shares, common equity shares, convertible notes, eSOPs, etc. It’s typically the first document created before others when a company is formed.
The capitalization table helps bring a zoomed-out view of the company structure to make important financial and business decisions. A cap table has a specific impact on making decisions about market value, market capitalization, and fundraising or sale.
How to make a capitalization table?
The cap table can be a simple table highlighting the shareholder’s identity v/s ownership percentage and type of ownership. The cap table can include more details around ownership projection in case of dilution, market value, etc. It starts to get complicated with increased activities of fundraising, sale, mergers, acquisitions, etc. A regularly maintained and accurate cap table helps ease many high-level business operations related to finance and company valuation.
Typically a cap table is made on a spreadsheet. There are dedicated features around cap table management available in various SaaS platforms for fundraising as well.
Major information listed include:
- Investor details
- Ownership type
- Ownership percentage
- Key decision-making powers as per the ownership
- Company valuation
- Calculations on dilution for various fundraising scenarios
- Details about reserved shares, outstanding shares, unissued shares, etc
Here are some resources and templates for making the capitalization table:
- Hubspot shares various formats and types of cap tables across pre-investment, post-money, etc with examples — Read more
- Corporate Finance Institute provides a free cap table template and other important topics related to business finance — Download
- A detailed example of a cap table in venture capital — Read more
What information can one draw from the cap table?
A cap table will provide you with the following business metrics and insights:
- Your ownership: The cap table gives a clear picture of how much skin in the game you have as a founder. It also shows key investors and stakeholders have an influence on decisions to be made about your company. As you own 100% of the company initially, you can onboard relevant business partners and investors and determine equity allocation as per best practices.
- Deciding employee options: With a cap table, you can determine if you have additional room for expanding the employee option pool if that’s the need of the business. It also shows options used by your company to date and available options for new hires.
- Fundraising strategy: Cap tables help visualize how much will anyone among the stakeholders with lose (or gain) in the event of fundraising. A well-managed cap table helps visualize cap table changes with each funding round or major company event that affects the cap table (acquisitions, mergers, etc). This helps negotiate better term sheets, draw lines and run risk analysis as needed.
- Manage company structure: Knowing the cap table distribution helps determine and manage various stakeholder benefits. It helps visualize the company structure and manage it to make it more efficient or aligned for company growth.
- Company taxation and compliance: A cap table comes in handy to determine applicable taxes and avoid penalties. Hence, it becomes important to maintain an updated cap table. Depending on the country’s regulations, one can use a cap table as proof of ownership.
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