A cap table is a detailed document that outlines the equity ownership of a company. It includes information on shareholders, the number of shares they own, and the percentage of the company they control. Understanding this document is crucial for making informed business decisions and planning for growth.
Cap table management is critical for startups as it directly impacts financial decisions, ownership structure, and investor relations. Proper management ensures transparency, avoids disputes, and prepares the company for future funding rounds and exits.
When setting up your cap table, it’s essential to include the following:
Names and contact information of all shareholders over time
Total shares issued and allocated, including share type, e.g., ordinary, preferred, options
Percentage of ownership for each shareholder.
The value of shares at different stages of funding.
When maintaining your cap table, it’s important to ensure you:
Founders should allocate shares based on their contributions, roles, and future commitments. It's crucial to establish a clear agreement to avoid conflicts later.
Implement vesting schedules to ensure employees earn their shares over time, typically with a one-year cliff and monthly vesting thereafter.
As your startup raises funds, tracking investor equity becomes complex so maintain detailed records of each funding round, including the number of shares issued, the price per share, and the resulting dilution.
Convertible notes and Simple Agreements for Future Equity (SAFEs) convert into equity in future, it's important to track them carefully and understand their terms.
Dilution occurs when new shares are issued, reducing the ownership percentage of existing shareholders. Understanding and managing dilution is crucial for maintaining stakeholder trust and equity value, with some common examples below.
ESOPs can impact the overall equity distribution so need to managed to align with your company's growth and retention strategies
M&A can create complex equity splits, so a well-maintained cap table helps maintain clarity and fairness among shareholders.
These will impact existing equity and ownership percentages so understanding is really important for founders and investors alike.
ESOPs can impact the overall equity distribution so need to managed to align with your company’s growth and retention strategies
M&A can create complex equity splits, so a well-maintained cap table helps maintain clarity and fairness among shareholders.
These will impact existing equity and ownership percentages so understanding is really important for founders and investors alike.
Dilution occurs when new shares are issued, reducing the ownership percentage of existing shareholders. Understanding and managing dilution is crucial for maintaining stakeholder trust and equity value.
Regularly updating your cap table to reflect all transactions is crucial for maintaining accuracy and transparency.
Clearly communicate with all stakeholders to foster trust and ensure all parties are informed and aligned with the company's equity structure.
A well-managed cap table can be a strategic asset for your startup. By maintaining a clear and accurate cap table, you can demonstrate the value of your company to investors and potential partners .
A transparent, well-organised cap table provides investors with confidence in your company's equity structure and growth potential to help the fundraising process go smoothly.
It’s important to understand securities laws, tax requirements, and other legal obligations when managing your cap table, regularly reviewing these requirements and consulting with advisors helps ensure compliance. You’ll need to submit accurate and timely reports, keep detailed records and stay organised to prevent compliance issues.
Unless you have in-house capabilities, we recommend you work with legal and financial advisors to help navigate the complexities of cap table management. Advisors can provide valuable guidance on legal compliance, tax implications, and strategic planning, ensuring that your cap table is managed effectively.
Proactively managing your cap table ensures transparency, facilitates growth, and builds trust with investors and stakeholders.
At Sytrus, we provide comprehensive cap table management services, from setup and maintenance to strategic planning and compliance. Reach out on our website for a no obligation chat.
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If your revenue is £500,000 per year or more, or you’re a Seed to Series B startup looking for financial clarity and an agile, proactive solution, contact us now.