Components of a Cap Table

A cap table is just a breakdown of ownership percentages—how hard can it be? 

Imagine this: new investors come on board during fundraising rounds, each diluting the ownership stakes of existing shareholders. At the same time, you’re awarding stock options to attract and retain talent, each with specific vesting schedules, exercise dates, and cliffs. What happens when an employee leaves before their options fully vest? 

How do you manage the implications of convertible notes or SAFEs converting into equity? These scenarios are common in the life of a growing startup, and they all impact your cap table.

So a cap table may not be as simple as you might think. 

But if you are just starting out, a basic cap table like this can help you get started. You can make a copy of it, enter your details and get started.

To help you understand the template better, let’s now take you through the different components that a cap table usually accounts for.

Components of a cap table

Many founders make the mistake of treating their cap table and stock options independently. However, together they make up your ownership structure and shouldn’t be treated as separate items.

1. Shareholder breakdown

The foundation of any cap table is the shareholder breakdown. This section lists all individuals and entities that hold equity in the company. It includes:

• Founders: They typically hold significant portions of equity in the early stages of the company.

• Investors: Individuals or entities who have injected capital into the company during various funding rounds. 

• Employees with stock options: Key team members who have been granted options to buy shares at a future date, typically as part of their compensation package. These options are meant to incentivize and retain talent.

• Advisors and consultants: Professionals who may have been granted equity or options in exchange for their services and expertise.

• Other stakeholders: This can include early supporters, family, friends, or any other individuals or entities who hold a stake in the company.

‍2. Security type

The cap table must differentiate between various types of securities, each with its own rights and characteristics:

• Common stock:  Common stockholders have voting rights and can receive dividends, but are last in line to receive assets if the company is liquidated. Founders and employees usually hold common stock.

• Preferred stock: Often held by investors, preferred stock comes with special rights and privileges. These have priority over common stockholders in the event of liquidation. They may also be promised fixed dividends, and anti-dilution provisions.

• Convertible notes: These are debt instruments that convert into equity upon a specific event, such as a future funding round. They often convert at a discount or with a valuation cap, providing early investors with added incentives.

• Stock options/warrants: These are rights to purchase shares at a predetermined price. Stock options are typically granted to employees as part of their compensation, while warrants might be issued to investors or other stakeholders as part of a financing arrangement.

3. Number of shares

This section details the actual number of shares each shareholder owns. It provides a snapshot of equity distribution and is crucial for calculating ownership percentages and understanding the impact of future dilution.

• Outstanding shares: The total number of shares that have been issued to date. 

• Authorized shares: The maximum number of shares that the company is legally allowed to issue, as specified in its articles of incorporation. These shares can later be increased after board consent and amendment to the Memorandum of Association (MoA)

‍4. Price per share

The price per share reflects the valuation at which each share was issued during various funding rounds. This helps track the dilution of ownership percentages over time and is critical for understanding the financial implications of issuing new shares.

• Historical prices: The cap table should document the price per share at each funding round, providing a clear financial history.

• Current price: Reflects the most recent valuation and is essential for calculating the current worth of each share.

5. Fully diluted shares

Fully diluted shares assume that all convertible securities (such as options, warrants, and convertible notes) have been exercised. This number gives a clearer picture of potential future ownership, as it represents the maximum possible dilution of existing shares.

• Impact on ownership: Understanding fully diluted shares helps stakeholders see the worst-case scenario for their ownership percentage.

• Future planning: It aids in planning for future funding rounds and potential exits by providing a realistic view of how the cap table might evolve.

6. Ownership percentage

This metric shows each shareholder's percentage stake in the company. It is critical for understanding the distribution of power and financial benefits within the company.

• Current ownership: Reflects the percentage of ownership based on the current number of outstanding shares.

• Fully diluted ownership: Reflects the percentage of ownership if all convertible securities were exercised. This is important for understanding potential future scenarios and the impact of new investments or employee stock option plans.

7. Fundraising details

• Total investment amount: This tracks the cumulative amount of funds raised by the company from all funding rounds. It's a critical figure that provides insight into the financial backing the company has received and indicates the level of investor confidence and support. 

• Pre-money valuation: It is the company's estimated value before receiving new funding. It's a critical metric because it sets the baseline for how much ownership new investors will receive for their investment by influencing the share price.

• Post-money valuation: It is the company’s value after the investment round is complete. It's calculated by adding the amount of new funding to the pre-money valuation. This figure is essential for understanding the company's updated worth and helps in calculating the ownership percentage of new and existing investors.

Benefits of keeping your cap table updated

1. Understanding ownership structure

A cap table clearly shows the distribution of ownership among shareholders, including founders, investors, and employees. This transparency helps understand who has control over the company and voting rights. 

For instance, if certain investors hold preferred shares, they might have special voting rights or veto power over key decisions. Keeping the cap table updated ensures that everyone is aware of these dynamics, helping in making informed decisions.

2. Tracking dilution

a. Future funding rounds: As new investors join the company, the ownership percentage of existing shareholders gets diluted. By maintaining an updated cap table, you can see the impact of potential future funding rounds on your ownership structure. 

For example, if you plan to raise another round of funding, you can predict how much more your ownership will be diluted, helping you strategize accordingly.

b. Option exercises: Stock options granted to employees as part of their compensation can also dilute ownership when they are exercised. The cap table should include all granted options and their vesting schedules. This helps in forecasting the potential dilution impact when employees exercise their options, allowing you to manage and plan for these changes in ownership.

3. Calculating share value

By keeping track of pre-money and post-money valuations, you can estimate the current value of each share. This is crucial for understanding how much each share is worth at any given time, which is important for both existing shareholders and potential new investors. Accurate share valuation helps in making informed decisions regarding stock options, fundraising, and potential exits.

4. Facilitating negotiations

An up-to-date cap table is a valuable tool during negotiations with investors. It provides a clear and comprehensive overview of the company’s equity structure, which can help in discussing terms, setting expectations, and reaching agreements. 

Read more on cap table management.

In conclusion, a cap table, while seemingly simple at first glance, plays a vital role in managing a startup's ownership structure. By keeping your cap table up-to-date, you gain valuable insights into key metrics like ownership percentages, dilution impact, and share value. This transparency empowers you to make informed decisions regarding fundraising, stock options, and the overall future of your company. 

As your startup grows, so will the complexity of your cap table. Soon you will realize that spreadsheets are not an ideal place to manage critical information like this and you will start looking for a cap table management solution like EquityList. 

Our platform streamlines the entire equity lifecycle for startups. We allow you to onboard your secretarial and legal teams on the platform for them to manage their due diligence which otherwise is a nightmare. We also make it super simple to talk to your investors and employees. Need board approval or get someone to sign a grant letter? Our platform has easy-to-use workflows that keep everyone on the same page and get things done quickly.