Successful startups need two things: powerful people and powerful financial backings.
One of the most intuitive ways to navigate the money side of things is through cap tables, which are basically any new business’s road map to track who owns how much of your company and any financial risks or obligations you have.
Back in the day, before startups took over Silicon Valley, cap tables were relatively simple and used to track the ownership of the company. There was never really more than a handful of partners who were backing the business.
But now, raising the necessary capital can be far more complex and keeping track of investors can be much more complicated! And with so many more people that are counting on your success, there is also a larger need to build the various scenarios that can occur and the financial obligations you would legally be required to uphold in each one.
Now, not to fear if cap tables are stressing you out! We are here to give you the latest details on everything cap table-related and give you the top tips to fully utilize this handy tool.
1. You don’t have to do it alone
There are numerous programs out there that have been designed to help people just like you build their cap table! So if you don’t know where to start, look to the cap table experts who have modeled various tables for various businesses and their needs. They have already built out the calculations for you, made taking notes and tracking changes easy, and integrated the cap tables into a larger start-up program for those wanting the extra support. So never fear, there are people out there to help make cap tables your new best friend!
2. Use it to raise your capital
If you are a startup who is needing some financial backing, now is the time to whip out your cap table. They will be pivotal in helping you get the capital raised that you are after and be a great reference during any negotiations for both pre and post-valuations. Make it your ultimate go-to in all things business that you are doing!
3. You can make it unique to you
Now, because cap tables are not actually legal documents, you do not have to do it in a cookie-cutter way. In fact, you can adapt the cap table to make it work for your unique company and the models you are needing. The golden rule with cap tables is that no two should ever look the same! But in general, there is always reference to shareholders, shares, dilution, funding rounds, liquidation preferences, dates, and totals.
4. Let it drive employee benefits
Make your employees loyal by letting them buy into your company. They are working hard to help you achieve your goals, so they do deserve some of your success! The cap table is often used to outline how much of your company is available for employees to buy into and how much the company can afford to match an employee’s contribution. Most companies will use a cap table to calculate this for at least 12 months straight and it lets them have comfort in knowing that they can actually afford to do this.
Cap tables are basically like the financial risk and obligation bible for startups. It is important to have an understanding of these if you are wanting to get your startup off the ground and running into the big leagues. To get the latest on cap tables, it is always recommended to engage with professionals who eat, breathe and sleep cap tables!