Cap Table Basics: What is Included in a Cap Table?

A capitalization table or cap table is one of the most important documents for a startup. What is included in a cap table? It lists all of the company's equity holders, how much equity each holder owns, and the value of those shares.

A cap table is an essential tool for startups because it helps them keep track of their shareholders and dilution. It also allows startups to see what would happen if they were to raise money from investors or issue new stock.

Let's break down what is included in a cap table and how to create one for your startup business.

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What is Included in a Cap Table?

A cap table is a document that lists the ownership structure of a company. This includes the names of the shareholders, the number of shares each owns, and the percentage of ownership each shareholder has.

The cap table is an important document for startups and early-stage companies because it helps you keep track of your equity and make sure that everyone is on the same page when it comes to ownership.

The most important thing to remember about a cap table is that it is fluid. As your company grows and raises more money, the ownership structure will change. It's important to keep your cap table up-to-date so that everyone is aware of the current situation.

If you're looking to raise money from angel investors or venture capitalists, they will almost certainly ask to see your cap table. They want to know who owns what percentage of the company, and they want to make sure that the dilution is fair.

So what exactly should you include in your cap table?

First and foremost, you'll need to list the names of all the shareholders and the number of shares each one owns. You'll also need to include the percentage of ownership for each shareholder.

It's also a good idea to include the date of each round of financing. This will help investors see how the equity has been distributed over time.

Finally, you should include a column for "options outstanding." This is the number of shares that have been granted as stock options but have not yet been exercised.

If you're not sure how to create a cap table, there are a few online resources that can help. The best way to learn, however, is to ask someone who has experience with this process.

Common Types of Equity in a Cap Table

When it comes to startup funding, there are different types of equity that can be included in a cap table. Common shares, preference shares, and convertible notes are just a few examples.

Each type of equity has its own benefits and drawbacks, so it's important to understand how each one works before making any decisions.

One of the most common types of equity is common stock. This is the standard type of equity that is issued to shareholders. Common stocks give shareholders the right to vote on company decisions, and they are typically entitled to a portion of the company's profits (if any).

However, common stockholders also have the most risk, as their shares may be worth nothing if the company fails.

Preference shares are another type of equity that can be included in a cap table. Preference shares typically give shareholders priority when it comes to receiving dividends or other payments.

However, preference shareholders usually do not have voting rights.

Convertible notes are a type of debt that can be converted into equity. This can be a good option for companies that are not yet ready to issue equity.

Convertible notes typically have a lower interest rate than other types of debt, and they can be converted into equity at a later date.

Each type of equity has its own pros and cons, so it's important to understand all of your options before making any decisions.

Be sure to consult with a financial advisor to ensure that you are making the best decision for your company.

Why Convertible Notes Aren't Always Ideal for Startups

One of the downsides of convertible notes is that they can be converted into equity at a later date, but the terms of conversion may not be ideal for the company.

For example, if the note is converted during a down round of financing, the holders of the convertible note will receive more shares than they would have if they had invested in equity at that time.

This can dilute existing shareholders and give too much control to early investors, which is why it is important to carefully consider the terms of a convertible note.

Know Your Company's Fully Diluted Capitalization

As a startup, it's important to understand your company's fully diluted capitalization. This number tells you how much equity your company would have if all convertible securities were converted into shares.

This is important to know because it can help you understand your company's valuation and how much each shareholder would own if the company was sold.

To calculate your company's fully diluted capitalization, you need to know the number of shares outstanding and the fully diluted share count.

The fully diluted share count includes all shares that could be issued, including those that are not yet issued but could be issued through the conversion of securities such as options or warrants.

You can calculate your company's fully diluted capitalization by dividing the number of shares outstanding by the fully diluted share count.

For example, if your company has 1,000 shares outstanding and a fully diluted share count of 1,200, your company's fully diluted capitalization would be $833,333.

Understanding your company's fully diluted capitalization can help you make informed decisions about your company's valuation and equity.

FAQs About What Is Included in a Cap Table

Do you include options in a cap table?

The cap table should include an option ledger that records additional information regarding the stock grants, such as the date the stocks were granted, the stock price, the schedule for when those options vest, and any shares that have been forfeited, issued or purchased.

How do you structure a cap table?

The capitalization table is an organized way to list all of the owners of a company’s stock. It lists the names of security owners on the Y-axis and the types of stocks on the X-axis.

Does the cap table include debt?

Aside from tracking transaction history, a cap table is also comprised of many other important documents such as the issuance of stocks, transfer of shares, cancellation of shares of existing shareholders, and conversions of debt into equity. The executive team must keep all these records up to date to show the history of all company actions.

Conclusion

A cap table is an essential tool for startups because it helps them keep track of their shareholders and dilution. It also allows startups to see what would happen if they were to raise money from investors or issue new stock.

What is included in a cap table? A capitalization table typically includes the names of a company's shareholders, the number of shares each owns, and the value of those shares.

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