I’ve seen a lot of cap tables as an investor — there has been a spectrum! The worst I’ve seen is when founders have received some terrible advice, they haven’t done their homework to think about the future or they’ve been pushed into a corner to make some decisions.
Unfortunately there have been times when the cap table is in such a state it is very difficult to continue due diligence and therefore you’re unable to invest as a result.
So here are some high level principles to think about when setting up your cap table and thinking about each round! And always remember to seek suitable accounting and legal advice.
This is an adaptation of a presentation I made to early stage founders in 2022 seeking venture capital growth and investment.
First some points to note before we get started!
- The focus will be on high level principles — they are not hard or fast rules.
- The ecosystem and market is always evolving so take into account the current macro and micro economic conditions.
- Be mindful of you and your company’s respective requirements and circumstances. Remember to adapt accordingly!
- Educate yourself on what is standard practice and what is happening in the market. It’s especially helpful to talk to your peers or others who have just done what you’re about to embark.
- Lean on your existing investors and advisors — remember you can challenge their thinking and counsel, you can also ask for the why and the data behind their advice.
- This is YOUR company and your vision — have a line of sight of the process and controls!
- The following is not exhaustive and remember to chat to your accountant and legal team for advice specific to your circumstances.
What is a cap(italisation) table?
A cap table is a table (usually in a spreadsheet) showing the breakdown of a company’s shareholder equity — eg. broken down by co-founders, investors, employees.
It’s typically updated after each round of funding and it is likely to be part of the data room when you’re engaged in due diligence with a prospective investor.
Prior to fundraising you can think of it as a very useful tool to model and forecast additional rounds of capital or liquidity…