A capitalization table, often abbreviated as “”cap table,”” is a financial spreadsheet or document that provides an overview of a company’s ownership structure and the distribution of its equity and securities. It is a fundamental tool for startups and established companies to keep track of who owns how much of the company, including common and preferred shares, stock options, warrants, and other securities. Cap tables are essential for both financial and legal reasons, as they help manage equity, make informed decisions, and facilitate various financial transactions. Key elements typically included in a cap table are:
1. Shareholders: The cap table lists all the shareholders, including the founders, investors, employees, and any other individuals or entities who own equity in the company.
2. Security Types: Different types of securities are itemized on the cap table. This can include common shares, preferred shares, stock options, and convertible securities.
3. Ownership Percentages: The cap table shows the ownership percentages for each shareholder or investor. It provides a clear picture of who holds what portion of the company.
4. Investor Details: It provides information about the investment made by each investor, including the number of shares or options acquired, the purchase price, and the investment date.
5. Convertible Securities: Cap tables typically account for convertible securities, such as convertible notes, SAFEs (Simple Agreements for Future Equity), and other convertible instruments. They track the potential conversion of these securities into equity.
6. Vesting Schedules: If applicable, the cap table may include vesting schedules for shares or options granted to employees, founders, or advisors. Vesting schedules outline when and under what conditions equity becomes fully owned by the recipient.
7. Valuation History: The cap table may include information on the company’s valuation at different funding rounds or milestones, helping to track changes in the value of the company.
8. Exit Scenarios: Cap tables are often used to model potential exit scenarios, such as an acquisition or an initial public offering (IPO), to determine how the proceeds would be distributed among shareholders.
Cap tables are frequently used in various scenarios, including fundraising, mergers and acquisitions, equity management, and strategic decision-making. They provide transparency and clarity regarding the ownership and equity structure of a company, which is critical for both internal stakeholders and external parties, such as investors, legal professionals, and potential acquirers. Maintaining an accurate and up-to-date cap table is essential for sound corporate governance and financial planning.