How to Create a Cap Table?

Think of a cap table, short for a capitalization table, as a simple document that tracks your company's ownership. It shows who your investors are, the types of shares they hold (common stock, preferred stock, etc.), and what percentage of the company they own. 

This information is crucial for two important reasons:

a. Understanding dilution: As you raise more money and issue new shares, the ownership percentages of existing investors change. A cap table helps you track this.

b. Planning future fundraising: When you approach new investors, they'll want to see a clear picture of your ownership structure, which a cap table provides.

How to create a cap table?

In the early stages of a company, when the investor pool is small and funding rounds are straightforward, founders typically use spreadsheets to create their cap table. Spreadsheets provide a familiar and accessible method for tracking ownership.

However, it's essential to acknowledge that spreadsheets have limitations. As your company expands and your cap table becomes more complex, these constraints can become increasingly cumbersome. We will talk about this more in the next section, but for now, let's guide you through the process of creating a cap table using spreadsheets.

Here are the key elements you may include in your spreadsheet cap table:

‍1. Investor details

Thoroughly document every individual or company that has invested in your venture, including angel investors, venture capitalists, and maintain their updated contact information.‍

2. Investment instrument

It's crucial to specify the financial instrument used for each investment, whether it's a priced round, convertible note, or SAFE agreement. This detail is essential in a cap table to clarify how each investment impacts company valuation, ownership dilution, and ensures compliance with legal requirements.

For example, a priced round establishes a clear valuation per share, whereas convertible notes and SAFE agreements typically convert into equity at a future round's valuation.

3. Share class

Specify the share class held by each investor and their associated rights. Common stock provides basic voting rights, whereas preferred stock may offer advantages such as guaranteed dividends, liquidation preference, and other special voting rights. 

The allocation of voting rights between these classes determines corporate control, hence having a clear view of it among stakeholders is important.

‍4. Number of shares

Record the exact number of shares issued to each investor. This number is used to calculate ownership percentages and dilution with future funding rounds.

5. Price per share (FMV)

For priced rounds, include the price paid per share. This helps calculate the total investment amount for each investor and reflects the company's valuation at that specific funding stage.

6. Ownership percentage

To calculate ownership percentage, divide the number of shares an individual or entity owns by the total number of outstanding shares, then multiply by 100.

Ownership percentage is essential for determining voting rights, assessing investment value, understanding control over decisions, evaluating equity dilution, and aligning interests with the company’s performance

To make it easier for you,  we've created a cap table template that includes all the elements mentioned. You can make a copy and start using it right away.

Learn more about the components of a cap table.

Limitations of using spreadsheets

Managing cap tables on spreadsheets may seem straightforward, but it entails more than listing shareholders and their ownership percentages. 

Behind the final output lie complex transactions: investment rounds involving convertible notes and SAFEs, equity distribution including tracking vesting schedules and grants for employees. Compliance with regulations necessitates thorough reporting of transactions, adding an additional layer of difficulty.

Spreadsheets are inadequate for handling all these tricky affairs, whereas cap table management software like EquityList are designed to streamline and manage these processes effectively.

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‍1. Cap table management

Spreadsheets can become cumbersome as your company scales and your cap table grows more convoluted. Dedicated cap table and equity management software like EquityList offers a robust set of tools designed specifically for managing cap tables. It includes features such as real-time updates that automatically reflect new grants or financing rounds.

2. Complex investments

Spreadsheets often struggle with accurately tracking complicated financial instruments such as convertible notes and SAFEs. 

For instance, a company might issue convertible notes in a funding round with provisions that convert them into equity during subsequent rounds at varying terms based on the company's valuation. Managing these instruments manually can lead to errors in calculating conversion amounts and their impact on ownership percentages.

In contrast, EquityList automates these calculations, ensuring precision and compliance with accounting standards.

3. Scenario modeling

While you might build elaborate formulas to simulate different scenarios in spreadsheets, it is time-consuming and prone to mistakes. EquityList provides dedicated scenario modeling tools to explore "what-if" situations. You can input different investment terms and valuations to see real-time impacts on ownership structures.

‍4. Shareholder consents

If you are using spreadsheets, shareholder consents will need to be handled outside your cap table. But on EquityList you can use built-in templates to draft, collect, and store consents electronically, with features like digital signatures for added security and convenience.

5. ESOP management

Manually issuing and tracking ESOP grants in spreadsheets increases the likelihood of errors and is time-consuming if you have multiple grant types (e.g., stock options, restricted stock units) and vesting schedules. 

EquityList automates the entire process - you can easily handle multiple grant types and even customize their cliff and vesting schedules. The platform also sends alerts for important events like vesting, exercising etc.

6. Vesting schedules

Tracking individual vesting schedules manually in spreadsheets is a hassle because employees vest at different times, some leave early and need their options adjusted, and some have multiple grants.

EquityList handles all these situations automatically, making equity vesting easier and accurate.

7. Investor communication

EquityList serves as a centralized platform for secure and organized communication with investors. It allows sharing of investor updates, and relevant documents within the software. This otherwise would have had to happen externally, giving a broken experience.

8. Accessibility

Spreadsheets often fall short in delivering personalized views for various stakeholders. In contrast, EquityList offers customizable views tailored to different user roles (like investors and employees). 

Additionally, it boasts efficient search functions for quick data retrieval and streamlined access control.

9. Compliance

When relying on spreadsheets, maintaining records for audits and tax purposes can be cumbersome. It involves navigating through historical versions of the spreadsheet, making multiple copies from various dates, and cross-referencing them. 

In contrast, EquityList simplifies compliance tasks with automated tax calculations for employee stock options, thorough audit trails, and reports tailored for regulatory requirements.

10. Data rooms

Data rooms are invaluable during fundraising, offering a centralized platform to organize financial records, cap table information, and other confidential data. This software securely shares these documents with investors while tracking views and downloads to prevent unauthorized access. 

Unlike spreadsheets, which require separate management and can slow down the due diligence process, data rooms streamline document handling, expediting the entire due diligence timeline significantly.

While a software is better equipped to handle the complexities of cap table and equity management, it comes at a cost ($), whereas spreadsheets are free to use and can be implemented immediately.

We hope you found this blog helpful, sharing our detailed guide to cap table management if you would like to read more. 

You can reach out to us, in case you would like to learn more about EquityList and how we help you manage your cap table effectively.