For the most part, a capitalization table should be pretty easy to read. After all, it is never really going to be displaying that much in the way of information. However, despite this, it is still an important part of your business. As a result, you need to ensure that they are prepared in the right way.
So, what goes into the best cap tables? Let’s look, shall we?
Why is it Important to Use the Best Cap Tables?
Cap tables are a vital component when you are looking to gain investment for your business. They help to show exactly who owns what in your business.
While cap tables are rather simple, if they are not presented properly, you will be giving off the wrong impression to potential investors. If they do not know what they are investing in when you talk to them, why would they be investing in you?
Automated Calculations
There are some pretty sophisticated calculations that can go into creating cap tables. It is vital that you do not get the calculations incorrect too. This could have legal consequences.
Therefore, the best cap tables will tend to have some sort of automated calculation built into them. This will help to ensure that all of the information int he table is accurate which will, of course, make it easier for a business to gain investment.
Guided Inputs
The right information needs to be included on a cap table. Therefore, there should be some sort of guided input in place. This will ensure that everything that needs to be included is included. Once again, accuracy in your cap tables are important for everybody involved in the company.
Easy to Read
While a lot of people will be using their tables to gain funding, startup owners will also have to remember that a cap table will help to ensure that they make the right choice when they are selling stakes in their company. Basically, it ensures that the value of the shares is not diluted too much.
Some of the best tables will even automate some of this process to help startup owners make wiser decisions when it comes to the running of their business.
Multiple Table Types
This is important. The cap tables used by businesses will change depending on the stage of investment that they are at.
Cap tables will always start being pre-money cap tables i.e. before any outside investment is brought into the company. This helps to show the initial ownership of the business, as well as what was invested.
As investment is attracted, this will progress to a post-money stage. This is where outside investment has started to roll in. Of course, this will dilute the ownership that the pre-money shares initially had. This needs to be properly recorded so everybody knows how much of the company they own at each stage.
If you are using a Y Combinator as seed money for your startup, then it would be wise to have a separate table to display this too.
Checked Over By Professionals
Ideally, the best tables will be checked over by professionals before you finalize them. If a business legal expert looks over the tables and they give you the ‘go ahead’, then you know that all of the information is accurate and, as a result, you can start to finalize your company.
Conclusion
While cap tables are rather simple, it is still important that you get them right. After all, whether you are able to secure investment will hinge on how well the cap table has been prepared.
Interesting related article: “What is a Shareholder?“