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06 Jun 2024

Cap Table for Startups – The Complete Guide for 2024

06 Jun 2024
Cap Table for Startups – The Complete Guide for 2024

Cap Tables For  Startups 

A cap table is a spreadsheet that breaks down who owns what in a startup. The cap table is a key item because it reveals how every stakeholder is impacted by every fundraise/ dilution in the Company. Startups sometimes utilize a capitalization table, or “cap table,” to display ownership shares in their company. It includes a list of the securities your firm has issued (stock, warrants, options, etc.), the price that investors paid for those securities, and their respective ownership stake in the business. A company’s equity-based transactions are recorded in a cap table. It covers share kinds, option pools, and ownership holdings.

As a startup founder, you’ll be involved in various critical activities like fundraising, share transfers, determining the investor’s stake, analyzing the dilutions, etc. – all of these are vital in business as it places the founder’s ownership at stake. To overview, Cap Table is required to be prepared that lists down all the stake holding and dilution at summary level. Due to limited knowledge about Cap Table, the founder are always required to consult with an experts to understand the appropriate analysis.

 

Importance of Cap Tables 

Maintaining a cap table for startups  is crucial for investors and company owners alike for the following reasons:

  • It offers a clear visual representation of the ownership structure of a company, including who owns what, who has invested, and how much each person has invested. (both pre and post investment)
  • It assists you in monitoring the value of your debt and equity assets so you can remain informed about your company’s financial situation.
  • It is a critical document that ease founders/ investors to make more informed decisions
  • It facilitates the management of employee stock options and the amount that may be awarded from the pool of corporate shares.
  • It shows how incentivized the startup’s founders are in the Company.

All things considered, a capitalization table is a single source of truth that provides a complete picture of financial investments for any organization, greatly simplifying the process of visualizing cash flow and assisting with decision-making.

 

Sample Cap Table for a Startup

To ease the pain, Treelife has prepared a sample CapTable format that shares accurate and formula-driven results which saves all the efforts of the founders. The capitalization table format that you may design later will change based on the stage at which your company is operating and the parameters you intend to monitor. 

You may download the cap table sheet format from below. 

Cap table excel download | Cap table PDF download

 

Features of a Typical CapTable

We have prepared a complete package including multiple scenarios like Initial structure, transfers, ESOPS and two investment rounds. We have also embedded few charts to make it worthwhile and enlighten the summary at once.

It helps in the founder’s in:

  • Determining the number of shares held by each founder / investor at every interval
  • Provides the ratio to total shares held by each stakeholders;
  • Analysis of the shareholding pattern from the early structure till the investment round
  • Review the completed scenario through a pie chart

Let’s explore how to unlock the steps to use this format in an easy way to make the tool more useful

capitalization table india in 2024 sample

Creating a Table of Capitalization

When a firm first starts out, most cap table tools are made in the form of a spreadsheet that is meticulously organized around a few factors that we’ll go over below. A key component of any cap table is ownership interest. It describes who holds the majority share in a company and what proportion of the company is owned by its founders, investors, or workers. A voting agreement between common and preferred shareholders is typically required for startups, and this section outlines who must approve important business decisions (such as a sale or reorganization). Names of shareholders and the quantity of shares they possess may occasionally be listed in the ownership stakes section.

Who owns common shares without any special treatment and who owns preferred stock are shown in the kind of shares section. It is common to convert preferred stock into a 1x dividend of the initial investment.

Another transaction frequently seen on a cap table is debt that has the potential to become equity. When determining ownership, this convertible debt is taken into account on a fully diluted basis. This represents ownership in the scenario in which all existing warrants, options, and convertible notes are executed. Since every company is distinct, the following additional variables might be included in a cap table:

  • Valuation: The total amount that your company’s shares cost.
  • Total authorized shares: The total amount of shares that your business is permitted to sell.
  • Total shares outstanding: The total number of shares owned by all parties involved in the business.
  • Reserved Shares :The entire amount of shares that are accessible to employees is known as reserved shares, sometimes known as limited shares.

 

How frequently should you update the Cap Table?

Considering how frequently organizations change, maintaining your cap table is crucial. Although there is no fixed time period for frequency of changes yet the totals in your chart will change as a result of things like new fundraising rounds, hiring more staff, and increasing investments etc. Hence by keeping your chart updated, you can be sure you’re always working with the most recent data.

The following are some typical cap table components  that one should monitor and adjust as needed:

  • Valuation: Update it whenever the price of your stock fluctuates.
  • Investors: Include new investors in your table as they become available.
  • Hold/restricted Stock: When hiring new staff, adjust the quantity of shares offered if you provide stock to them.
  • Debt that has been changed to stock.
  • Total number of shares that are outstanding.
  • Shares that are still authorized.

Setting up designated individuals or groups to oversee your cap table is also crucial. A simplified approach is ensured by having a single person make all adjustments, while several persons having access might get confusing if they make their own edits.

 

Utilizing a cap table

  1. Knowing Your Equity Cap table: One of the main purposes of the cap table is to illustrate how choices affect a company’s stock structure. Would you like the pool of staff options to be larger? Are you planning to raise money again? In any case, you can precisely observe how decisions will affect your shareholder groups. When raising capital for the first time, you must be well aware of the sacrifices you will be making. That’s exactly what the cap table will do—it will display the company’s planned new structure.
  2. To converse about the first equity payouts: A cap table, which is a written breakdown of your firm, is created when you create one. But from the outset, having a cap table can simplify your work since it may help you lead crucial discussions with the founding team, such as early stock distributions.
  3. To oversee the possibilities available to employees: It’s important to match the goals of your business with the incentives of any new hires. You may match employee contributions with the right amount of shares by offering stock options, which are a terrific method to accomplish just that. The precise number of options that are permitted to be granted to workers as well as the total number of options that have been used thus far will be displayed in your cap table. Make sure there are enough options when you create your table.
  4. Discussion of the term sheet. Completing a what-if analysis on a fundraising round is made easier when you have a clear picture of your company’s ownership structure. One can analyze additional elements, such as the effect of issuing new options at different phases, and examine how your ownership position and corporate control change at different value levels.

 

Common types of CAP Tables

  • Standard Cap Sheet Table – If all you’re looking for is a basic summary of shares and stock, this cap table contains everything you need.
  • Pre Seed Cap Table – Before your startup takes its first official sip of investor funding, it needs a pre-seed cap table. This essential document lists all the founders, their share percentages (usually common stock), and any early contributors like friends or family who received equity in exchange for their sweat or cash.
  • Pre-Investment Cap Table – Pre-Investment Cap Table: For companies that haven’t raised capital through investments or fundraising rounds yet.
  • Post-Money Comparison Cap Table – Post-Money Comparison Cap Table: For companies looking to compare new financing to pre-funding rounds after completing fundraising or investment rounds.

 

Pro Tip : Steps to follow to analyze the Sample cap table model

  1. Download the format from the given link above
  2. Once downloaded, open the format in an Excel sheet
  3. Welcome screen will appear in an Excel sheet
  4. Click on “Guidelines” sheet and read it to understand the working pattern of the format
  5. Go the “Pre-requisites” and fill the requested information wherever asked:
    • Table 1 – Fill the Company name, Founder details and select applicable scenarios;
    • Table 2 – Feed the founder’s shareholding pattern;
    • Table 3 – Feed the share transfer details, if applicable;
    • Table 4 & 5 – Input the investment details
  6. The “main working” sheet will auto-calculate and populate the pattern basis the pre-requisites
  7. Refer to the chart analysis sections too for quick understanding

 

Conclusion

Cap Table sheet offers the formula-driven product basis the appropriate inputs. It makes trouble-free analysis in simple steps. Cap table as a Guiding Source of Truth for Indian companies provides a quick overview of ownership interest, stock options, and who should be involved in important business decisions. This article’s content would surely assist you in creating a superior cap table that will facilitate the hiring of new staff members or your next major fundraising endeavour.

 


Frequently asked questions (FAQs) related to Cap Tables – 


1. What is a cap table and why do I need one?

Think of it as your company’s “ownership map.” It shows who owns what percentage of your startup, from founders and employees to investors. It’s crucial for tracking equity, making fundraising decisions, and ensuring everyone’s on the same page.

2. What should my pre-seed cap table look like?

Start simple! List founders, their percentage ownership (usually common stock), and any early contributors with equity. Keep it clear and transparent.

3. How do I manage my cap table as my startup grows?

Manual spreadsheets can quickly become messy. Consider cap table management software for easy updates, scenario planning, and secure data storage.

4. What are the key things to consider when building my cap table?

Founders’ vesting schedules, employee stock options, and different investor classes with varying liquidation preferences all impact your cap table. Consult experts if needed!

5. Where can I find more information and resources on cap tables?

Many online resources offer in-depth guides and educational materials. AngelList, NFX, and various legal tech companies provide valuable cap table tools and templates.

Posted by
Treelife
Last updated on
Jun 06, 2024, 2:29pm

Disclaimer:

The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

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