What Is Cap Table?
The capitalisation table or the “cap table” provides a clear breakdown of a company’s ownership structure, outlining who holds majority stakes in the company and how much ownership each stake represents. In essence, a cap table serves as a comprehensive record of equity ownership in a company.
The capitalisation table is structured to display different types of ownership interests in a company, such as common stock, preferred stock, options, and warrants. The table includes detailed information about each investor or shareholder, the number of shares they own, and the percentage of ownership those shares represent.
For instance, if a startup has two cofounders and an investor, the cap table would list the cofounders’ ownership percentages and the investor’s ownership percentage. If the investor acquires additional shares, the cap table will be updated accordingly to reflect the new ownership distribution.
How Does One Create And Maintain The Cap Table?
Creating the cap table requires careful documentation of every equity transaction within a company since its incorporation. This includes information about the issuance of shares to founders, employees and investors, as well as any changes resulting from subsequent funding rounds or stock option grants. Startups often start building their cap table from the company’s inception and keep it updated as ownership stakes change.
Maintaining accuracy is crucial, as any discrepancies or errors could lead to misunderstandings among stakeholders or legal issues. Many companies use specialised cap table management software to keep track of ownership changes, issue new shares, and maintain transparency with shareholders.
Why Do Startups Need A Cap Table?
- Transparency And Decision-Making: Cap tables provide transparency and a clear picture of ownership within a startup. This is essential for making informed decisions about equity distribution, fundraising, and company operations.
- Fundraising: Investors, especially venture capitalists and angel investors, closely examine startups’ cap tables to understand the ownership structure. A well-organised cap table can instil confidence in potential investors.
- Employee Equity: Startups often offer equity to employees as part of their compensation packages. A cap table helps the company manage and allocate these equity grants effectively.
- Valuation: Cap tables play a role in determining a company’s valuation during funding rounds or acquisitions. Investors use the cap table to assess the value of their investment.
- Exit Strategy: When a startup is acquired or goes public, the cap table is a crucial tool for calculating payouts to shareholders, founders, and investors.
What Information Does The Cap Table Keeps A Track Of?
- Shareholder Details: Names of shareholders, including founders, investors, employees, and any other equity holders.
- Ownership Percentages: The percentage of ownership held by each shareholder. This indicates the relative influence and rights of each party.
- Equity Types: Different classes of equity, such as common stock and preferred stock, along with their corresponding rights and privileges.
- Share Counts: The total number of shares issued and outstanding for each equity class.
- Transaction History: Records of equity transactions, including stock issuances, purchases, conversions, and options grants.
- Vesting Schedules: Details of vesting periods and conditions for equity grants, especially for employees and founders.
- Convertible Securities: Any convertible notes, warrants, or other securities that can be converted into equity.
Are Cap Tables Public Information?
Cap tables are not inherently public information. They contain sensitive and proprietary details about a company’s ownership structure and equity distribution. Startups often treat their cap tables as confidential documents to maintain competitive advantage and protect shareholders’ privacy. However, for an India-based startup, this information is uploaded on the Ministry of Corporate affairs website at the time of closing a new funding round.
When a company goes public, the cap table is also disclosed in regulatory filings. Additionally, some investors or potential partners may request access to the cap table as part of due diligence before investing or forming partnerships.
