As your company grows. You will need more investments to earn capital, which will cater for all operations and activities in the business. You need to know how to raise capital aside from getting it from investors. One thing you will have to do is to organize the ownership as well as drawing the capitalization table (cap table) of the company.
What Is A Cap Table?
A cap table management is summarized version of the details of your investors and founder shareholders and their percentage of ownership in the company. It also contains equity dilution and the value of the equity at every investment interval.
Introduction to Cap Table
You need to understand better what a cap table is because it is a vital part of any entrepreneur’s life. A cap table is way more than just a simple spreadsheet containing shares held by every shareholder in the company. It is deeper than the representation of every transaction in the company from the time it begun. It is more than a representation of a company’s transactions because it also contains several legal documents.
The following is a summary of things you would except to make up the cap table:
- Exercises Of Options
- Stock Issuances
- Conversions Of Debt To Equity
With all this information to fill in the cap table, it becomes cumbersome to do it on a spreadsheet.
Why Is It Important To Have A Cap Table Management?
In a company, there is a lot going on every day. A cap table is a management tool that ensures smooth running of all organizational operations. A cap table is accurate and adequate in dealing with the numerous complexities in a business. The Cap table management involves drafting and signing of legal documents, communicating with shareholders, complying with regulations and recording transactions among other things.
A complicate cap table management is typical of any growing company. A company that keeps growing will ultimately have a complex capitalization structure. Such a company usually has more investors, more employees and numerous transactions. It is a good thing for a company to grow but as the owner, you need to up your administrative game. It can all become too overwhelming for you if you cannot manage everything properly and effectively.
Growing your business and managing your cap table should go together at all times. You should manage the cap table personally so that you are in control of all that is happening. Do not hand it over to someone else to do it, because you will make better decisions if you understand well the position of your company. Because using an excel spreadsheet is not easy, the best way to maintain a cap table software is through using cap tale software.
Why Is It Important To Have A Cap Table Software?
The following are some of the reasons why a cap table software is a crucial part of managing our company:
– Raising Money on Better Terms
A cap table that is effective, clear and reliable will help you when you will be taking up investments. It helps you to negotiate better if it is accurate and up to date. It is important that you start managing with a cap table right from the moment your business is starting up. It is easier this way because it will be too hectic for you to start preparing it when you are about to take up an investment. Ensure all information recorded in the cap table is accurate and true to avoid complications in your company that arise from having wrong information in the cap table.
– Issuing Options
In order to manage your company effectively you need to keep track of vested shares for all option grants, since stock options usually vest over time. It is not as straight forward as it sounds becomes sometimes an option holder may leave the company before time, meaning their unvested options are finally given back to the company. For equity loans, your company offers to employees, there is a specific amount of time when the employee can exercise their options prior to returning.
– Selling the Company
Sometimes companies decide to go public or to be sold. The cap table is essential in the face of such events because it will direct you on what amount to give to each person. Casing out during an acquisition also demands that a cap table be present especially by lawyers who use it to complete the deal. Such lawyers will not use an excel spreadsheet; they require you to have all the information accessible in one place. They need the transactions, valuations over the year, options agreements, sales agreements and shareholder agreements among others.
– Get a Cap Table Software
When your company is growing, you will discover that for a cap table management to work, you need something more organized and convenient than a spreadsheet. When the company starts to offer equity compensation especially,, the spreadsheet automatically becomes complicated and it does not allow you to organize everything. The cap table becomes complicated when you gain more investors and employees in the option pool and that is why you need a cap tale software.