Capitlisation tables (cap tables) demonstrate much more to potential investors than just a snapshot of your company’s equity - they also tell a story of the decision-making and business acumen that brought you to this point.
This article will tell you what you need to include in yours and what investors are looking for between the lines.
The key details to include in your cap table
To be recorded and updated after every round of funding. Details to include:
- Authorised shares
- Outstanding shares
- The type of shares (usually ordinary shares or preference shares)
- Class of shares (for example, alphabet shares)
- The nominal value of each share
- Shares reserved for employees (for an employee option pool, for instance).
A complete list of all shareholders (including founders) and their details including:
- Full names
- Contact details
- Types of shares they own
- Percentage ownership
Details of other securities
If applicable, such as:
- Convertible loan notes
- Restricted Stock Units (RSU)
Details of your company's recent valuation, including pre-money valuation (your company's value prior to outside investment).
Every company is different, so not all cap tables will look the same. The important thing is to paint a clear picture of your company.
How to present your cap table to an investor
Your cap table needs to be a simple, organised and accessible representation of your company’s share ownership and any outstanding shares.
The most common structure has the shareholders' details listed on the Y-axis, and the security type on the X-axis.
You can download our free cap table template here. But to be honest, a spreadsheet is not the best way to manage your cap table.
Our customers have access to real-time digital cap tables that update automatically. This helps minimise costly (and all-too-common) cap table errors, making internal communication and decision-making simpler for founders, and access easier for investors.
So these are the literal details investors need to see, but just as important is the story these details tell about your company and you as a founder. A healthy cap table demonstrates your company's potential for growth and reflects your judgment.
What investors look for in your cap table
Investors look for three main things when evaluating your cap table: sufficient founders stake, a healthy option pool and where the rest of the equity lies.
1. Founder stake
The top concern investors have is that the founder still has enough stake to stay motivated. A common founder mistake is giving away too much too soon in eagerness (or desperation) to attract investment.
Not only does this demonstrate a lack of judgement, but it can lead to worries they don’t enough ‘skin in the game’ to be as motivated as they need to be.
If, after the seed round, the CEO owns less than 10% or the founding team less than 50%, alarm bells can start ringing. This can be avoided by limiting the number of bridge rounds in the early stages and taking care of your share dilution.
2. Healthy option pool
Employee option pools can be a valuable means of recruiting and keeping top talent, especially in the early stages when your company can’t compete with blue-chip salaries.
This is a fact investors are quite aware of, and indeed, some may even insist on the creation of an unallocated option pool prior to investment.
Knowing how much to set aside for your employee option pool (and who gets what) is another matter. That’s why we’ve created a tool to help you work out how many shares to give to your team.
3. Where the rest of the equity lies
Investors tend to prefer an even equity distribution; one not split too far or spread too thin.
You want to avoid situations where too much equity is sacrificed to early-stage investors, incubators or accelerators, or in exchange for one-off contributions.
This not only complicates future strategy decision-making but results in too much ‘dead equity’ - shareholders adding nothing more than their initial cash or contribution.
Luckily, this can be avoided easily enough with proper terms and conditions in shareholder documentation - like buyback provisions, leaver clauses and vesting schedules.
Cap tables can seem simple at first, but the success of a business brings with it inevitable complications:
New investors, new recruits, with different option grants and vesting schedules, dilution of existing shareholder stakes etc.
A cap table is an organic, ever-evolving documentation of your company's equity, and one it is imperative you maintain with diligence and accuracy. A small mistake in your table at the start will get magnified over time!
A digital cap table that automatically updates, makes the job that much easier and minimises the prospect of costly mistakes…