Keeping your cap table clean and tidy should be best practice for any growing business.

But as organisations grow, this can become a challenge.

You need more investment to scale up your company, and with that, more shareholders need to be listed.

This can quickly amount to many individual names, all with varying amounts of equity, and resulting in potentially a lot of administrative time and effort to keep on top of it all.

A cap table can be quite a fluid thing too. As new shares get issued, and existing ones get transferred and sold, things can start to get disorganised. The risk of error, or that things simply aren’t adding up, increases.

Investors hate messy cap tables. And it can be frustrating for everyone when something that is relatively easy to address can be a barrier to getting the investment that you need.

Let’s dig into what it is about untidy cap tables that really puts investors off and, most importantly, what can be done about it.

Why investors hate messy cap tables

To reach conclusions quickly

It’s important to put yourself in the shoes of your investors.

Angel investors and venture capitalists are seeing lots of investment opportunities all the time.

They are constantly weighing up where best to put their funds to bolster their respective portfolios and give them the best returns down the line.

They simply don’t have time to waste trying to make sense of disorganised or unnecessarily lengthy cap tables.

A messy cap table means a messy business

Your cap table is a good indicator to potential investors about how easy (or not!) you and your existing shareholders will be to work with should they come on board.

A cap table that is disorganised, unclear, or contains mathematical and spelling errors will not send a good message about your organisation.

Likewise, if there are already lots of shareholders involved in the business, this can also be a red flag to investors. They want to ensure that communicating and working with you in the future is going to be as efficient as it can be.

If it looks as if they’re going to have to deal with loads of different stakeholders, with a set-up that lacks organisation and attention to detail, they’ll likely look elsewhere to find an opportunity that doesn’t have these issues.

You can’t trust a messy cap table

There is a certain level of trust investors need to have in a company before they invest in it.

They need to trust that the information in your cap table is up-to-date, honest, and transparent. And they need to trust that you and your business can use their investment to deliver the growth they are expecting.

There is simply too much risk involved in a project where it doesn’t look like things are adding up. Investors will be very wary of being misled. And it’s not worth the potential disputes or legal repercussions down the line for both parties.

Roll-up vehicles (RUVs) are a good solution

What’s an RUV?

Before we get onto RUVs, let’s quickly cover Special Purpose Vehicles (SPVs). These are separate legal entities created for specific business purposes.

RUVs are a type of SPV. They are used to, quite literally, roll-up multiple investors into a single group or syndicate.

How can they help?

RUVs are created under a new legal name.

In the first place, this can greatly reduce the number of individuals listed on your cap table making it quicker to read and easier to digest by potential new investors. It’s also easier for you to manage internally, helping ensure that all the information contained is accurate and up-to-date.

RUVs also have the added benefit of providing more streamlined communications. The group will tend to have a lead investor who communicates on behalf of everyone in it.

Prospective investors will be able to see that any future conversations that need to be had with other shareholders will be easier and more efficient with fewer names on the cap table.

This will make for quicker decision-making and faster approvals – great for busy VCs and angel investors who want to minimise the amount of time spent on the admin that comes with having shares in multiple businesses.

Messy cap tables - it doesn’t have to be this way

Messy cap tables might have inaccurate information. They may even show that there is dead equity among your shareholders, as well as toxic debt (loans that haven’t been repaid).

Investors are used to spotting these red flags. There is a very real risk that you can stall the growth of your businesses if you aren’t getting the investment you need when you need it.

Of course, keeping your cap table clean, organised, and up-to-date, is not just about ensuring your business looks its best during your next funding round. It helps the long-term growth of your organisation – making your shareholders and their equity easier to manage internally. It keeps everyone involved communicating efficiently.

SPVs, such as RUVs, are a great way to streamline your cap table. Cap table management software can also automate more of this side of your business.

To learn more about setting up SPVs, an RUV, or how to move away from old-school spreadsheets to a more efficient cap table platform altogether, get in touch with Vestd today!

Vestd keeps your cap table in check, automatically updates Companies House and reduces unnecessary paperwork.

Book a free, no-obligation consultation to see how easy cap table management can be.