A capitalization table, also known as a “cap table”, is a critical document that provides a snapshot of a startup's ownership structure at a given point of time. Typically, it is a dynamic spreadsheet that outlines the shareholders of the company and their respective ownership percentages. Cap tables are essential for founders and investors to make informed decisions regarding equity ownership and capitalization.
In simple terms, a cap table breaks down who owns what in the startup. It highlights the distribution of ownership among various stakeholders, including founders, executives, key employees, angel investors, and venture capital firms. The table includes different types of ownership interests, such as common shares, preferred shares, options, warrants, SAFEs, and convertible notes. It usually serves as a crucial due diligence item during fundraising, revealing how each stakeholder is impacted by the injection of capital.
A well-structured capitalization table typically categorizes shareholders by type and stock class. Shareholders can be listed by shareholder type or in descending order of ownership percentage. Additionally, cap tables may incorporate additional information about funding rounds, public offerings, mergers, acquisitions, and significant financial transactions. These details provide valuable insights for decision-making by company executives.
Regular updates are vital to maintaining an accurate capitalization table. As the startup grows and the ownership structure becomes more complex, transitioning from manual updates using spreadsheet software to dedicated accounting software is a common practice. Keeping the cap table current enables founders and investors to navigate equity-related decisions and better understand the impact of funding and growth on the company's ownership structure.