A capitalization table, or cap table, is a crucial tool in the world of investment and whether you're an investor or a founder, understanding how a cap table works is a must.
- A cap table is a spreadsheet that shows who owns what (ordinary or preferred shares, stock options, etc) in a company.
- It's a dynamic tool that provides valuable insights into a company's financial structure and dynamics.
What is a Cap Table?
A cap table is a document that lists all the securities of a company and who owns them. Each line in this spreadsheet corresponds to an investor in the company. This line includes information on :
- type of instruments (ordinary or preferred shares, stock options, warrants, etc);
- the percentage it represents in the company’s equity;
- sometimes, the price paid per share and the amount of the investment.
What does it mean for the company?
The cap table is a map of a company's ownership, a snapshot of its financial structure.
Each line in the cap table represents a shareholder that the company must consult every time important decisions regarding the business must be made.
Several important business-related matters are approved by shareholders. Going through a voting process with a couple of investors is relatively straightforward when all interests are aligned.
But the same process with dozens of investors can soon become a nightmare. Some may be disinterested or slow to respond, which can delay critical business decisions and impede the company's growth.
Fortunately, raising with Roundtable helps you solve this issue. And if you have already raised and have a “messy” cap table, it’s not too late to get in touch with us. We’ll happily clean your cap table while preserving the rights of your current shareholders.
What does it mean for investors?
As an investor, by looking at the cap table, you can already have a pretty good idea on the following points:
- Control and Decision Making: The equity distribution can show who has control over major decisions. If a single entity or a small group of investors holds a significant portion of the equity, they’ll have a large influence over the company's direction.
- Potential Conflicts: When there are many investors with significant stakes, potential conflicts can arise and block the company’s growth. This is especially true if their interests are not aligned.
- Employee Incentives: The presence of an employee stock option pool (ESOP) on the cap table can show how the company incentivizes its employees. It also shows if there is enough equity set aside for future hires.
By understanding these dynamics, an investor can make more informed decisions about whether the company's governance structure aligns with their investment goals and strategy.