How to Annoy Your #Investors with a Bad Captable (Part 1)

What is a Captable? A capitalization table is a table that lists a company's securities, including shares of common stock, preferred stock, bonds, and options. The table also lists the corresponding amount of capital that each security represents. The capitalization table is used to determine a company's financial structure and is an important tool for financial analysis. Your cap table should include the following information: - The names and ownership percentages of all equity holders - The type of each equity instrument (common stock, preferred stock, etc.) - The price per share of each equity instrument - The number of shares of each equity instrument outstanding - The total value of each equity instrument This information can be helpful in several ways. First, it can help you raise money by giving potential investors a clear picture of your company's ownership and value. Second, it can help you understand your company's value for tax purposes. Finally, it can help you make equity-based compensation decisions. Why Do Startups Need Cap Tables? One of the key reasons why startups need cap tables is to keep track of their dilution. Dilution occurs when a startup issues new equity, which can happen when they raise money from investors or when they give equity to employees as part of their compensation. By tracking their dilution, startups can make sure that they're not giving away too much of the company and that they're still incentivized to grow the business. A cap table can help prevent disputes among shareholders by providing a clear and concise record of who owns what. This is especially important if the company is acquired or goes public, as there will be a lot of money at stake. Captable and #due diligence When conducting due diligence on a potential investment, it is important to review the company's capitalization table. To investors, the captable is a key due diligence document providing a snapshot of a company's equity ownership. If the founders' stakes in a startup have been reduced significantly by previous financing rounds, it is likely a red flag. A sizable employee stock option pool will help to motivate employees and keep them committed to the company's success. With a clear understanding of the company's capitalization, decisions like whether to issue new shares or share options can be better analyzed and made in the best interest of the company's future. This information can be used to assess the riskiness of the investment, as well as the potential for future dilution of the investor's ownership stake. It is also important to review the terms of any outstanding options or warrants, as these can have a significant impact on the company's future capitalization.