Every startup needs funds, especially at its initial stages. During the funding stage, startups can attract interest from many different investors and might have multiple investors contribute funds to their growth.
Startup founders must establish an ownership structure concerning their split and what is given to investors. This is one of the core reasons you should invest time in setting up a startup cap table.
In this cap table guide, we will answer the question of what is a cap table for a startup?, its importance to a startup’s operation and provide you with a cap table template for Google Sheets and Excel below.
Free Cap Table Template
What is a Cap Table for a Startup?
A cap table is a short form for a capitalization table. It refers to a chart, table, or spreadsheet used to show the ownership stakes of anyone who has equity in a startup.
The cap table lists the stocks, warrants, options and shows the amount each investor paid for them and the percentage each investor owns in the startup.
You’re probably wondering, “what should a cap table include?” A cap table should include the following information;
- The details of the startup’s valuation at the last priced round
- Authorized shares
- Complete list of shareholders
- The total number of shares each of the shareholders own
- The type of shares each stakeholder own
- The percentage of ownership stake
- Outstanding shares
- Shares reserved for stock options
- Unissued Shares
Other equity elements, such as SAFEs and convertible debts, are part of the cap table but not included in its main section. This is because the value of these instruments is not yet important, because they only convert into equity on the startup’s next round or another agreed upon event.
Therefore, they are listed in a separate cap table section containing other information. This information includes the investor, the date of issuance, any interest rate on the notes, their maturity date, and the terms for converting the convertible debts and SAFEs into equity.
Cap Table Template on Google Sheets & Excel: Easy-to-use Cap Table
There are a few different ways to create a cap table, but one of the best ways to do it is on Google Sheets or Excel. First of all, Google Sheets is free. So if you’re bootstrapping your startup, it’s a great option.
Secondly, your cap table is easy to share with investors and partners if you are using Google Sheets. You just need to send them a link, and they can access it anywhere. They don’t have to be familiar with the interface to understand it; they can easily navigate it regardless of their tech skills.
Moreover, you can easily make changes and updates as needed. Finally, Google Sheets integrates with other applications like Google Docs and Dropbox, which makes collaborating with others a breeze.
We have added a free template to make things easier for you. Below, you will find a cap table template Google sheets and Excel that you can download, edit, and use for your company. Simply fill out the form below to receive this spreadsheet directly in your inbox.
Free Cap Table Template
In a cap table, there are certain terms that you need to understand before attempting to build one for your own. They include:
Seed refers to the first round of venture capital funding that the company gets. This round of funding usually comes after the pre-seed funding and is followed by the Series A funding round. At this stage, the shares sold are typically referred to as preferred stock.
Pre-money valuation refers to the startup's negotiated value before it starts raising funds and investments.
At a seed round, there is unlikely to be any investments or external funding; therefore, the company management or potential investor negotiates and agrees on a value.
This is the direct opposite of the pre-money valuation, and it refers to the startup's value after raising funds and investments. This value, unlike the pre-money valuation, is not negotiated. You can derive the post-money valuation by adding the pre-money valuation and any new equity received from external investors.
Price Per Share
The price per share is the price of one share of the company. To determine the value of a price per share, you add the value of common stocks and stock options and use the total amount to divide the startup's pre-money valuation. The answer you get is the price per share.
For the purpose of simplification; Price per share= Pre-money valuation/ (common stock + stock options).
This refers to the number of shares the startup founders have authorized to be issued to investors and shareholders. While the startup founders determine the number of authorized shares, it is binding and cannot be exceeded except for special occasions. The authorized shares are included in the article of incorporation created at the start of the startup.
Common stock can be referred to as the most basic type of shares in a company, and it grants ownership to its holders. Some of the privileges of common stock include the ability of holders to elect the members of the board of directors and vote on corporate policies.
Preferred stock, like common stock, signifies an ownership stake. However, they grant special rights and privileges to holders. Some special privileges with preferred stock include higher dividends and asset distribution claims.
On the downside, the holders of preferred stock have minimal voting rights or say in corporate governance. Different types of preferred stock include participating, convertible and non-participating.
Stock options, also known as equity options, are an investor's contractual right or agreement to buy or sell a stock at a date and price previously agreed upon. This agreement confers a right and not an obligation to buy or sell the stock.
This refers to the total amount of money raised and invested into a company during a particular series of funding.
Total Share Ownership
This is the total ownership of an individual in a company. It is derived by adding all of the preferred stock, common stock, stock options, and any other type of stock or shares owned by an individual.
Fully Diluted Share
A fully diluted share would refer to the total number of available shares if the stock sources were converted or liquidated. In other words, if you were to liquidate the startup today, the total amount of cash you would get refers to the fully diluted share.
Important Considerations to Make When Managing the Cap Table
By now, you already know what is a cap table for a startup and how to read one. However, it is not enough to know how to create a cap table or read a cap table; there are certain management skills and strategies that come with the cap table.
This will help you with the above cap table template google sheets and with any other tools that you may decide to use to manage your cap table.
As an entrepreneur or startup founder, you should be able to manage your cap table to enable you to get the best out of it. The following are some of the important strategies for managing a cap table;
Understand the Formats and Basic Elements of the Cap Table
A cap table can come in many different formats or types. We mentioned earlier that there is no stated format or arrangement that the cap table must take. There are cap table templates on google sheets, while other templates exist in spreadsheets, charts, or tables.
The cap table is valid as long as it contains the necessary information and elements. Now, your primary job as a startup founder concerning the management of the cap table is to ensure that you understand your cap table, regardless of its format.
You should also understand each of the elements and terms in the cap table and how they affect the ownership structure. This is the first and most important step to ensuring an effective management process for your cap table.
Record and Update Every Necessary Details
As the founder, you must ensure your cap table is up-to-date. This task can be daunting, especially as your company grows and raises more money. But it’s crucial to update this table regularly to ensure that the company’s shares are listed accurately and reflect any changes in the ownership structure.
Shares can only ever be issued or transferred; they cannot be removed from the cap table. Therefore, you must make the necessary updates to your cap table whenever an issuance or transfer occurs, such as when employees are given stock options.
Nevertheless, using a google sheet or excel to track your cap table data will make it easy to keep track of any changes or updates.
Free Cap Table Template
Include Data on Convertible Notes if there are any
Convertible notes are debt security that can be converted into equity later, usually at a predetermined price. They’re a popular way for startups to raise money, as they offer investors the option of either receiving a fixed return or converting their debt into shares in the company.
You’ll need to include all the key details of convertible notes in your cap tables, such as the amount raised, the conversion price, and the maturity date. This will help you track who’s owed what and make it easy to calculate dilution when new investors come on board.
Delegate the Control and Ownership of the Cap Table
The creation and management of the cap table is typically the responsibility of one or more founders. However, as the startup grows and goes through multiple rounds of investments and funding, cap tables become complicated. Hence, the founder may delegate the control and ownership of the cap table to the legal team.
Delegating to the legal firm or department helps you minimize errors, stay on top of situations and decisions regarding the cap table, and allows you to focus on other aspects of running the startup. Moreover, without training and a proper understanding of what is a cap table for a startup, founders have a high chance of making errors that could have serious financial implications for the company.
Plan for the Future Employee Stock Option Pool
You’ll need to outline your plans for the future employee stock option pool. This will help manage the cap table and ensure everyone is aware of the available stock options.
When you’re outlining your plans, ensure you have a clear idea of how many shares you’ll need to set aside. Include a vesting schedule so everyone is on the same page and knows when they can start exercising their options.
The Importance of Cap Table for Startups
We have defined what is cap table for a startup and mentioned that it helps startups establish the ownership stake of each investor, employee and founder in the company. However, there are more reasons startup founders can benefit from a cap table. They Include:
1. They Help you Understand Voting Rights
As much as funding and shareholding help the finances of the startup, it also determines each investor’s voting rights concerning the startup’s decision-making process. By stating the amount and types of shares owned by each investor, it is easier to see the extent of the voting power each investor has, and this helps founders understand how best to navigate it.
2. It Provides Necessary Information to Potential Investors
Apart from running background checks on your startup, potential investors also want to understand what the ownership structure of your company looks like. This is another way through which a cap table helps you.
With your cap table intact and updated, all you need to do is provide the potential investors with the required information and allow them to make their decision. Having the ownership structure of your startup arranged in an organized way puts you in a good light with your potential investor.
3. Contains the Financial History of the Startup
One of the biggest hurdles many startups face when entering a funding round is having improper financial records (both current and historical). Cap tables detail the funding history of a company. With a detailed and well-updated cap table, you should be able to answer any questions that potential investors ask about the ownership structure of your company.
Apart from using the financial history for valuation purposes, the cap table is also helpful during an audit. Whether it’s an external or internal audit, a company’s financial history is essential to a successful audit, and the cap table provides a cogent part of this financial history.
In conclusion, it is easy to see and understand that a cap table is essential to a startup’s smooth operation and longevity. It covers many aspects of a startup’s lifecycle, which includes valuation, funding, audit, ownership structure, and decision-making.
Hence, startups should invest in the cap table from the early stages of the startup when the ownership structure is still simple. As the company grows, the ownership structure gets complicated; the same goes for the cap table.
How to Choose the Right Cap Table Platform or Management Tool
There are important features to look out for when choosing the right cap table platform or management tool. These features include:
The Longevity of the Management Tool
As a private company, moving from formation to exit takes a long time (SaaS companies take nine years on average!). This means you need a platform or management tool that would be around for a long while for you to manage your cap table. You do not want a cap table management tool that lasts only a few years.
If your management tool isn’t very reliable, you may need to start transferring your information onto another platform. This is stressful at best, and important information could get missing or mishandled in the worst-case scenario. Therefore, when choosing a platform, ensure that the platform has been around for years and probably has the backing of an investor.
Ease of Use
As much as the information on the cap table is sensitive and very important to the company’s survival, it is important that people can use the platform without the need for extensive technical knowledge.
For most later-stage startups and companies, a legal team handles the cap table. Therefore, it is important that the platform is easy to use and that a lawyer without much technical or computing skills can use it.
Not all software is easy to use, which is why many founders prefer to use our cap table template google sheets (above), as you know what you’re getting and can edit it accordingly to your business.
The Features of the Platform
This is arguably the most important consideration in choosing the right management tool for the cap table. There are many features that a good cap table tool should have, and they include shareholder access, notification, version control, and many more.
While all of these features are important, the most important include version control and administrative access. These features determine how secure the management tool is and how easily people can access the cap table.
We have added all of the necessary features and aspects our cap table template google sheets, so you don’t have to worry about missing crucial parts of your cap table.
Additional Features of the Platform
Another question you should ask when choosing a cap table platform is, “what else does the platform offer me apart from the cap table management tools?” Your need for cap table management tools will evolve with time, and many platforms are going the extra mile by providing other functions that a startup may find useful, depending on its stage.
Thus, the more relevant and new features, the better the platform. However, before considering the additional features, the tool should cover the basic features and functions.
A cap table is an essential tool for the startup founder; therefore, founders must pay attention to its creation and management. BaseTemplates specializes in providing templates to help businesses and startups grow. One of our products is the cap table template on Google Sheets and Excel, allowing startups to manage their cap tables easily. Visit our website to get a comprehensive captable template google sheets, among other useful startup templates.
FAQs About Cap Tables for Startups
How Do I Make a Cap Table for a Startup?
You can manually design a cap table for your startup. However, the cap table’s layout must be simple and organized to outline the shares, including outstanding ones, and who owns what.
You can easily make a cap table using some great templates available on the web. The best thing about using a template is that it conserves time and effort while helping you avoid mistakes.
We’ve provided a comprehensive cap table template on Google sheets and Excel that you can edit and customize for your company. Simply fill out the form above to receive this template in your inbox.
Should You Share Your Cap Table?
Sharing your cap table with other stakeholders is entirely up to you. If you’re feeling apprehensive, remember that sharing your cap table can help build trust and demonstrate that you’re serious about working together and making more informed decisions.
There may be various reasons you may not share your cap table, including if you fear your competitors may get hold of confidential information.