Table of Contents
- Capitalization Tables for startups
- Cap Table format
- Capitalization Tables best practice
- Why create a cap Table?
- Conclusion
Capitalization Tables or “Cap Tables” is a spreadsheet that documents what individuals or entities own a company. A Cap Table is therefore a comprehensive document that accounts for all of the securities or shares of a company including but not limited to common shares, preferred shares, options, SAFEs, convertible notes, and warrants.
Capitalization Tables for startups
For startup businesses in particular, the Cap Table is a critical document because it is typically a required item when potential financiers or purchasing companies are performing due diligence into a company to be financed or purchased. The Cap Table reveals how every stakeholder is impacted by an equity event.
Cap Table format
There is no standard format for a Cap Table. However, Cap Tables usually include in each column: a list of names or entities; details about what category of security the individual or entity owns; how many shares the individual or entity owns; on what date the holder invested; how many shares have vested to the holder (if applicable); and what percentage of the company the individual or entity owns.
During financing discussions, the company will prepare a “Pro-forma” capitalization table. The Pro-forma version of the cap table is theoretical or perspective in the sense that it shows the updated company ownership after a potential financing round closes. It allows the parties to model how the company’s ownership will change as a result of the financing round. The Pro-forma Cap Table also allows investors to pinpoint future dilution.
Capitalization Tables best practice
It is the best practice that a company’s Cap Table be updated regularly. This allows for greater ease when potential investors or purchasers are performing their due diligence. Ideally, founders should aim to have a Cap Table ready and up-to-date at all times, such as to impress potential investors. The Cap Table should be highly accurate, detailed, and presentable such that investors or purchasers have no questions about a startup company’s future success.
It is critical to note that the longer a founder waits to create a Cap Table, the more difficult and expensive it can be to create one later on.
Why create a cap Table?
For instance, for a company that has issued tens or hundreds of equity instruments, the fees for creating or updating a Cap Table can be tens of thousands of dollars. Also, the process is often lengthy, often taking weeks or even months. Thus, it is best practice to prioritize and maintain the Cap Table from your company’s conception.
Conclusion
If you need help creating or updating your Cap Table, contact the experienced Startup Attorneys at Sutter Law. We have helped numerous Silicon Valley and San Francisco startups create or update their Cap Table. We can help you create or update a Cap Table such that potential investors and/or purchasers will be delighted with your high level of organization and attention to detail.
