More than a simple spreadsheet, a cap table (short for capitalization table) records detailed data regarding the equity owned by shareholders. When it comes to raising capital, your cap table will help you make sound decisions regarding your offering. So, what exactly is cap table management?
A clear and well-managed cap table paints a detailed picture of exactly who owns what in the company. Whether a founder is looking to raise additional capital or offer incentives to employees, a correctly-managed cap table will show the exact breakdown of shares, digital securities, options, warrants, loans, SAFE, Debenture, etc. This information enables founders to understand how equity distribution is impacted by business decisions.
Proper cap table management ensures that all transactions are accounted for and that potential investors are easily able to see the equity structure during funding rounds. Founders are also able to better negotiate the terms of a deal when they have the entire picture of their company’s structure available for reference. Without a cap table, companies can face challenges when it comes to raising capital, due to a lack of transparency in the ownership of the company.
But, it’s not enough to simply have a cap table. Once created, it must be maintained properly and updated each time an equity-based transaction is conducted. In the early stages of the company, the cap table will be relatively simple to manage but as rounds of funding progress, it becomes more complex as shares are distributed amongst investors and employees. Some of the key features of a well-managed cap table management include:
- Records the voting rights of each shareholder.
- Documents when shares are issued and diluted.
- Keeps track of all equity holders, past and present.
- Records who owns what percentage of the company.
- Increases transparency among shareholders and investors.
- Enables quicker and more efficient transactions due to up-to-date information.
- Shows how much money each shareholder has invested in the company.
While simple cap tables can be created in programs such as Excel, a cap table management software may provide a better solution as it becomes more complex. As part of its all-in-one platform, KoreConX provides companies with the tools to properly record every transaction in their cap table. Encouraging transparency of shareholders, every type of security (including digital securities, shares, options, warrants, loans, SAFEs, and Debentures) that may be offered is accounted for and kept up to date as deals occur. By maintaining transparent records, companies can benefit from both shorter transaction times and expedited due diligence.
With an understanding of the importance of keeping a properly managed cap table, founders can arm themselves with the ability to make well-informed business decisions. Detailed insight into a company’s financial structure allows potential investors to feel confident in their investments, secure with the knowledge that their share is accurately accounted for. Even if the task of creating a cap table may seem daunting, it is simplified with a cap table management software so that everyone is on the same page.