On Wednesday 23rd February 2022 we held our first Globacap webinar with industry experts delving into alternative routes to liquidity. Whilst 2021 brought a record…
Published on: September 5, 2020
How to set up your cap table
Building a robust and accurate cap table that’s fit to scale should be at the top of every entrepreneur’s list.
If your company were a TV series, think of your cap table like the credits that roll at the end of each episode. It contains all of the information about your investors or shareholders, as well as the nature of those investments (which, of course, can change from season to season).
Many startups record this data in Excel, which might work when ownership is limited to two or three people. But as businesses scale, equity structures become more complex. The static spreadsheet, with all of the ‘occupational hazards’ of mistyped figures plus inconsistent formulas and terminology, is no longer fit-for-purpose.
Up to 70% of cap tables are maintained incorrectly. And the consequences can be dire – growing businesses without a clear picture of share ownership are as much at sea as those who fail to manage their overall finances accurately. Imagine trying to forecast earnings and borrowings, submit tax returns or analyse profitability without a modern accounting package.
It’s the same with a cap table. If you don’t have a detailed view of who owns what, when options are due to be exercised and which share options can be taken back from those who no longer invest in, or are employed by, the business; it’s difficult to get to grips with your current or future position.
You may find it harder to:
Secure additional funding
A cap table makes the ownership structure clear for all parties. Fundraising can be postponed or even cancelled if founders are unable to accurately explain their shareholder structure to potential investors, and legal fees to fix the problem quickly can be punitive.
Have 20/20 vision
Secondly, an effective cap table helps business owners keep track of every transaction associated with share ownership automatically. A spreadsheet needs to be manually updated, normally by a busy executive with a very long to-do list. The gap between actions taken in real life such as the promise of stock options and a manual record only gets wider with the complexity of share ownership.
Attract new talent
This lack of clarity has a knock-on effect on businesses planning to grow by attracting new talent. In a competitive employment market, it’s likely you’ll need to offer share options as well as a great salary and benefits package to land the right person. Without knowing exactly where you stand you may either miss out on that candidate as you scramble to do the calculations, or you could unwittingly make an over-generous offer.
A cap table will include employee share options as well as convertible notes or warrants, which are not usually included in a basic share register. It will also enable founders to demonstrate waterfall or scenario modelling to investors, reassuring them that they have an accurate understanding of where the business is headed.
Make an exit
Finally, a cap table is invaluable when an owner seeks to sell or otherwise exit their company. If an accurate record is not in place, owners could face legal disputes or even lose out on their anticipated value from the sale.
Get the cap table you deserve
Ready to say so long to the spreadsheet? Hosting your cap table on a secure online platform solves many of the pain points above, as well as saving you time and up to 80% in administration fees.
Globacap’s Cap Table Management platform allows for simple, one-click administration of shares, employee share options, convertibles and bonds; and auto-updates with every transaction.
If you’re ready to save time, money and manpower, get in touch.