Capitalization Tables

The StartUp Cap Table - The Core of the Business.

What's A Capitalization Table or Cap Table?

This is usually and excel spreadsheet showing the total amount of the various securities issued by a firm. This typically includes the amount of investment obtained from each source and the securities distributed such as common and preferred shares, options, warrants, etc.When you get all of this together it represents the ownership and voting percentages, and lots of other information. Investors use this to determine what they might or do own and what they might pay and what it might be worth. A lot of mights.

In order to get an investor - whether angel or VC - you have to prepare a cap table that shows your view of what rounds of financing you think you'll need and what value the company will be at when you raise the money. The number of shares you sell will drive two things: the percentage ownership and the price per share given the amount you;re seeking is stable (at least for this calculation).


What's a cap table used for?

A detailed and comprehensive capitalization table (cap table) is used to track the various types of outstanding stock in a company in relation to the company's value. The cap table or capitalization table tracks all classes and types of equity including of stock, stock options, warrants, etc. and details all shareholders and their ownership and voting percentages. Every investor needs to see a cao table to estimate of peg his/her share orice, value at time of purchase and possible expectations of future value and therefore yield. Stay on top of your company's valuation, use a capitalization table.

Splitting Founder's Equity

What's the issue?

Splitting up the founders' pie is not a trivial undertaking. Rarely should it be split evenly, even though that's what many start-ups do. Consider the past, current, and future relative contributions of the founding team members to the ultimate success of the company. Employ a quantified scenario of how the pie might be divided based upon assesed elements. So what to focus on?

  1. Past contributions: Who came up with the Big Idea? Helped refine the idea? Put money into the company to help get it started? Helped find another co-founder or seed investor?

  2. Future contributions: What role will each person play in the early months? Will that person still be playing a key role in a year or two (or more)? Still be working for the company at all?

  3. Opportunity cost: Is one founder giving up a cushy job at a top company, while the other is not currently employed? Is one dropping out of a good school, the other otherwise unemployed?

  4. Your relationship: Do you trust your co-founder to surrender equity to you later if you end up feeling like you're contributing more than he is? Are you willing to fight over the equity (e.g., sacrifice some of the relationship with your co-founders in order to get another 5%)?

Relative Importance of the Elements

For each company, the relative importance of these elements is likely to be very different than that for another company. A company based upon new technology is highly dependent upon the "idea." On the other hand, a new restaurant is not likely to be so unique that the "idea" is a major contributor to the restaurant's ultimate success. If we were to evaluate the ideas on a scale of 0-to-10, the technology company's idea might be a 7 or 8, while the restaurant may be only 2 or 3.


More Deal Split Views

There's even more things to think about when you split the equity. Make sure you think it through. Later, after everyone has their stock - it's a bitch to fix. So do it right the first time.

  1. Idea The company wouldn't exist if it weren't for the original idea, and that is certainly worth something, BUT there's a lot of truth in the saying, "A successful business is 1% inspiration, and 99% perspiration."

    1. Domain Expertise To what degree do you and your partners have meaningful experience in the business of your business? Knowing the industry, having relevant experience, and having a Rolodex full of accessible contacts can greatly improve the company's probability of success and speed its growth rate. Otherwise, it will take longer to get commercial traction and you'll have to pay for these assets, usually by hiring someone and including equity in their compensation package.

      1. Commitment and Risk You've probably heard the old saying that "a chicken is involved with breakfast, but a pig is committed." Similarly, the founders who join the company full time and are committed to making it a success are much more valuable than founders who are going to sit on the sideline and be cheerleaders. In addition, the opportunity cost for those who join the company instead of pursuing a career is not trivial.

        1. Responsibilities Who is going to do what? Who is going to go stay up at night when you can't make tomorrow's payroll? Where does the "buck stop"?

Rounds - Take all of the Money!


Make rounds sensible related to each other & forecast.
Investors want to know you can get somewhere on their money. Minimum 12 months, target 18-24.
Investors bet against you. Automatically they believe it will take more time and cost!
Investors need a reason to pay more than the last round.
Investors don't want to own more than 40% of your company but they won't take less.

Ownership - Value not control!


If you never sold shares you'd be 100% responsible for the value & income you derive...
If you're successful it will be just like you owned it all...
If you're middling - fighting ain't worth it & hey! Two out of three are in your favor...
On the other hand every, every, every, SHARE, is precious, think through who's going to get what...
Don't forget the employees. Investors will require you to allocate for them...
Don't let anyone bully you, on the other hand DO allow someone to be pre-emptive!

Pricing - Sell stock you'd buy!


MAKE SENSE! only sell what you would sell to your mother & father. So be HONEST with yourself...
Think about shares like your product - in a way you're selling the solution, benefits, & financial results of your vision...
Know what people are getting for similar companies in similar conditions, try for more, & settle for the same...
Each time you STEP UP the price it has to make sense - how much was it yesterday? & how much tomorrow?
There's pretty standard rounds, and valuations, you can't go too far outsude the normal...

Exits - Face it. Only 2 ways out!


Pick an exit! - Acquisition for lots of money or an IPO...
Be real. Ideas are a dime a dozen & no one will pay just for an idea...
Think metrics! The market or an acquirer will pay how much per what? account? application? customer?
Forecast & value metrics to justify exit timing & amount...
What are the PUBLIC COMPANIES valued at? Make sure to focus on followed companies and what they report...
Use IPO FILINGS to get language & facts about your segment, competitors, & much more...

Tips - Be RELENTLESS!


It's not in your interest to show all the cards in your hand. Be honest, don't yak about every concern of yours, say you "don't know" when you don't...
Suggest your valuation then seek their support or guidance ...
Say "We were thinking a $2m valuation, raising $500k now. What are your thoughts?"
Everybody has an opinion as to what you should do - listen but follow only what makes sense to you...
Know the forecast, business model, market size, & competition. Know as many facts as you can. Do't bullshit. DO Push...


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About Cap Table

What's a Cap Table

The cap table or often formally called capitalization table, is the record of every benefical owner of the company's existence.

When a company is sold, many, many, times what's sold is all of the shares or stock of the company and in turn, of course, it's stockholders.

Stock can take many different forms: common stock, preferred stock, options, warrants, and more...

Use The Cap Table

There's so little you need to do to have a cap table! But you gotta do it.

No one will invest, from angels, to venture capitalists without seeing who owns what, when, and for how much.

Here you enter each stockholder and the details about their purchase.

Later you can assign other cool things that let you view, summarize, hide, etc. so certain people see the cap table accurately, but presented the way you want.

Nice.

Cap Table Tips

Suggest your valuation then seek their support or guidance ...

Say "We were thinking a $2m valuation, raising $500k now. What are your thoughts?"

Everybody has an opinion as to what you should do - listen but follow only what makes sense to you...

Know the forecast, business model, market size, & competition. Know as many facts as you can. Don't bullshit. DO Push...


Features

Investor Types

Rounds

Classes

Voting

Fully Diluted

Invested

Valuation