Business

Cap Table Management

What You Need To Know About Your Business’s Cap Table

At the highest level, the cap can be described as a spreadsheet businesses used in the tracking of ownership percentage in a company. For instance, at the initial stage, when two people decide to open a coffee shop, automatically, they would each have a fifty percent share. At this juncture though, the cap table is still very easy.

With time, the coffee shop will grow and they will bring on board new employees and investors. Such additions will take their toll on the shares being held by the two owners. This then calls for the need of a cap table as things will quickly get complicated due to this kind of growth. The cap table is normally done in Excel spread sheet.

Anatomy Of A Cap Table:

Cap Tables Come In Different Models. However, Each Contains The Same Important Things:

  • Investors in the company.
  • Amount and price invested.
  • Amount and percentage of shares owned by each investor.
  • Actual equity of shares.

Using the above information, it is very easy to track the performance of your company with each transaction.

Who Manages Your Cap Table?

Ordinarily, you will use the Cap Table Management as a point of reference point, whenever you are engaged in vital issues such as the company’s significant equity transactions, shareholder information, and regulations, which are updated every time an equity transaction happens. Suffice to say that managing a cap table can be very cumbersome than just adding more lines on a spreadsheet.

You will also need someone with a background in law to help you manage it rather than an accountant, even though it is accounts oriented. However, managing it will also greatly rely on the size of your company. During the initial stages it will be handled by the founders and, in most cases, in the growth stage is the period when the legal team sets in. This is because any transaction involving money and investor negotiations requires great transparency. Hence, the need for a legal team, who will help you update your cap table in accordance with the terms of engagement.

Most small entities can have at least one legal contact in the initial stages, but might revise this along the way as they grow. This can cause a little bit of confusion, before everything is put into its place. During this period, it is normally the founders’ responsibility to track every activity. However, as the company expands, a controller or CFO is brought into the picture to help manage everything internally, with the assistance of a full-time, in-house lawyer.

How Company Owners And Shareholders Use A Cap Table

While it may not necessarily be used on a daily basis, in case you are starting or operating a business, then your Cap Table Management is your ally guiding you on important decision making processes. For your investors and founders as well.

Below Are Some Of The Main Instances You Will Want To Use Your Cap Table:

  • When raising funding, a meticulously kept cap table is an important segment when it comes to investor and employee negotiations. The former will want to see the company’s existing capital structure to see if they will blend in. On the other hand, the founders will want to show case how new investments will end up diluting the ownership stake and value of every share issued.
  • When giving stock options to workers can make a cap table cumbersome to manage but at the same time, more important. This is the time for tracking the amount of shares invested over a period of time. Make the necessary changes, in case an employee, who is an option holder leaves a company together with restricted stocks, transfers, and repurchases.
  • When hiring for major roles, or holding onto key players whom you feel are very important for the company’s growth. It is not just the key players but your employees, who are searching for equity as a compensation process, also being open with your cap table will give you great leverage when negotiating.
  • When laying out your exit strategy, you will use your cap table management tips to ascertain what everyone will get when you are either going public or have been acquired.

More On What To Use Cap Tables In The Finances Procedure:

In terms of great strides made by any company, the issue of fundraising is one of the most fundamental moments, in which a Cap Table Management will come in handy. This is because investors will simply want to see value for their money. In the event that you have manually kept your records, especially in Excel and not in specialized software, it can be very costly in the end. Hence, a law firm will be required to peruse through every other document manually to ensure that everything has been reconciled and updated, which is painfully difficult.

 

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