A capitalisation table (also known as a “cap table”) sets out who owns what part of your company: it is a list of all your company’s securities (i.e. shares, options, warrants, convertible instruments etc.), who owns them, how ownership vests over time and what instruments exist that may change the ownership interests in future. It is not simply your company’s share register. They take various forms and can be simple or relatively complex, depending on how you wish to use it. Running a business means constantly making decisions and you’ll want to have accurate information at your fingertips so you can make them quickly.
Why do I need one?
When an angel investor or venture capital firm is looking to invest in your company, they will look to your cap table to identify all its owners. If an angel investor intends to provide you with seed funding, the information set out in the cap table impacts their future return on investment. A venture capital firm looks at the composition of the company’s ownership, the value of the securities issued by the company and the potential for dilution of ownership.
If everyone has one, there must be a standard form
No. There is no “one size fits all” approach to a cap table. The underlying information will remain constant but the form may change, depending on how it is to be used. Within your company, different people will look at the cap table seeking different answers. Your CEO may be interested in the effect of issuing new shares in the company, your company secretary may use the cap table to determine who needs to approve the issuing of shares and, as founder, you can see how much you will be diluted if you choose one venture capital firm over another for your next equity raise.
What information do I need to collect to include in my cap table?
Before you can create your cap table, you need to gather the information which will be plugged into it:
• Who are the founders and how many shares do they own in the company?
• Do you have an employee share option plan? Understand the terms of these plans and how they function.
• Have you promised different classes of shares (including preferred shares) to your investors?
• Do any advisers, consultants, partners or key employees receive special compensation or other incentives?
• Who are all the shareholders of your company?
• Who are all the option holders?
• What other instruments has your company issued and who are the holders of these instruments?
• For each type of security, compile the names, classes, price paid and the number of shares to which the security relates.
So, what should I include in my cap table?
The starting point is a summary of the owners of each type of security. Create a list for each type and class of security (i.e. separate lists for ordinary shares and preferred shares) and include the following details:
• Name of the security holder as it appears on the security instrument or document (e.g. share certificate, SAFE agreement).
• Date on which the security was issued.
• Number of shares issued or the number of shares to which the security relates (e.g. an option to acquire X shares).
• Date on which the security was sold, transferred, cancelled or other event if it is no longer outstanding.
• Price: how much the security holder paid for the security.
Lifting your cap table game
You’ll want to be able to manipulate your cap table so you can group types and classes of security holders together. This means you can use your cap table to see who you need to get consent from before taking a course of action. To do this, your cap table should include columns which show total percentage ownership across different classes of shares by each holder (based on the way in which different classes of shares are grouped together for decision-making purposes in your company’s articles of association). For example, if your company’s articles of association provide that a majority of Series A and B shareholders (taken together as one group) and a majority of Series C shareholders must give consent to the company issuing any new shares, columns in your cap table can be used to show you the shareholders from whom you need consent to proceed with the new issuance.
What else should I think about when creating and maintaining my cap table?
• Sharing it: You will probably need to share your cap table with lots of people and they will want to be able to take the information in it and use it in their own modelling. Keep your cap table up-to-date and in a form that can be shared easily. A hard copy won’t be enough: you need an electronic spreadsheet, preferably with imbedded formulae.
• Contact details: Keeping these details alongside the names of your security holders can be useful, particularly as your company grows and there are many individuals involved. Consider including both email and physical addresses for delivering notices and tracking people down if they move to a new house or workplace.
• Names: One individual may hold a variety of different securities in your company. Refer to your security holders in a consistent way throughout the cap table so that you can use it in the way described above (e.g. grouping together the holders of Series A and B shares).
• Lawyers: Your lawyer can help with making sure your cap table is the right one, and contains all the information you need, for your company and you as a founder.