Capitalization tables – “cap tables” for short – are tools used by startups to track ownership in their company.
At Redwood, we work with thousands of cap tables for our valuation engagements every year. We receive – and decode – all types and variations, from highly detailed Excel workbooks to back-of-the-napkin scribble from busy founders.
While every startup client will require some customization, here’s what we’ve identified as the must-have, bare essentials for cap tables:
Knowing who’s who among your investors is critical. Keep things simple and consistent here: List your investors by full name and include their share count, purchase price, and percentage ownership.
- Equity Classes
All investors will fall under an equity class or as part of a grant of options or warrants. Start by presenting equity classes in distinct, separate groupings – we’ve shown these horizontally across in our cap table examples below. Add total shares and the percent of the total class and overall equity they represent. For preferred, include the per share price. Finally, add the options and warrants because both represent a potential future claim on the equity of the company.
This is the basic source information you can then use to build an even more comprehensive version. From here, you might also want to add columns that build off this source data to arrive at Aggregate Purchase Price or Post-Money values.
Further, this example assumes that the Series A converts into Common Stock at a 1:1 ratio. If the Series A converts into Common Stock at anything other than a 1:1 ratio, then presentation would be expanded to ensure the Series A “as-converted” is appropriately represented and flows to the Fully Diluted calculation.
- Options and Warrants
Some companies add a separate worksheet for their “Option / Warrant ledger”. You can also build everything out in one sheet. With options, the total outstanding, the amount remaining in the pool, and the exercise price are relevant inputs here.
What tool should you use to replicate the example cap tables shown here?
We recommend using Excel. Google Docs works, but it falls short on handy formulas and shortcuts. Not to mention the professionals you’re working with – your investors and service providers – are probably (way too) comfortable in Excel.
Expanding your columns and integrating calculations is easy in Excel. As the company grows, so too will the cap table, with the Series B cap table resembling the following:
A thoughtfully constructed cap table (as shown) will help you wrap your head around your current and potential equity holders. It will be appreciated by your investors and lawyers. Did we mention it will streamline your valuation, too?
Still looking for insight?
An initial cap table should be straightforward and simple to build and understand. When share structures get more complex, it can’t hurt to turn to a reliable cap table provider. We refer our clients to the excellent cap table providers where they know they won’t overpay. Don’t let the biggest names overcharge you for their solutions. Reach out to us for a referral here.