A cap table (short for capitalization table) is essential for any company looking to raise capital. It provides a detailed breakdown of the equity owned by shareholders, enabling founders to understand how their offerings will be impacted and make sound decisions regarding their finances. When properly managed, cap tables help potential investors feel confident in their investments as they provide a clear picture of the company’s ownership. As such, understanding your cap table and ensuring it is up to date is important when assessing if your company is ready to move forward with fundraising efforts.
Must-Haves for Proper Cap Table Management
When it comes to cap table management, remember to include this elements:
- Voting rights
- Share issuance
- Past and current shareholders
- List any future projections for additional capital raises or dilution
- Track all options grants, vesting schedules, and related information
- The amount of money each shareholder has invested in the company
- Include details about convertible notes, warrants, and other debt instruments
- Clearly list all shareholders, their ownership percentages, and the date of their investments
All of the above must be taken into consideration and recorded accurately to ensure proper cap table management. With these basics accounted for, founders can feel confident that their cap table contains the necessary information so they can be ready to raise capital. Still, some dos and don’ts should also be observed to ensure the best possible outcome for organizations raising capital.
Cap Table Dos:
- Ensure that all information is readily available in an easy-to-understand way
- Maintain accurate and up-to-date information
- Take into account dilution from future funding rounds, options pools, and performance issues
Cap Table Don’ts
- Overlooking the potential for dilution when raising capital
- Failing to update it when new shareholders invest
- Hesitating to consult a legal or financial advisor with any questions that arise
- Neglecting the importance of understanding the cap table and its implications
By following these dos and don’ts, organizations can avoid potential pitfalls in the capital raising process and ensure an efficient, effective raise for all involved parties. A well-maintained cap table ensures transparency between investors, founders, and shareholders.
Best Practices for Managing a Cap Table
Though having a comprehensive cap table is vital, keeping it updated and organized requires consistent effort. To ensure your cap table remains accurate, it’s essential to follow the best practices for managing a cap table, including:
- Updating the tables regularly as new investments come in or out
- Keeping multiple copies of the tables in both digital and physical form
- Storing the cap table in a secure location with proper backups for redundancy
- Utilizing a FINRA broker-deal with knowledge of and experience handling cap tables for JOBS Act raises
- Monitoring new regulations and laws to ensure the cap table is compliant with all applicable standards
By following these best practices for managing a cap table, companies can ensure accuracy, transparency, and compliance when looking to benefit from raising capital. It will also give investors confidence that they have all the information they need to make informed decisions.