Startup Cap Table Essentials
Introduction to Cap Tables
What Is a Cap Table?
A capitalization table, or "cap table" for short, is a spreadsheet that lists all the people and entities who own a piece of a company. Think of it as the official scorecard for who owns what.
A cap table (capitalization table) is a spreadsheet or database that tracks who owns what percentage of your company.
Its main purpose is to provide a clear, detailed picture of the company's ownership structure. This includes founders, employees with stock options, and investors who have bought in. The cap table tracks every share of stock, showing who it belongs to and what type of security it is.
equity
noun
The value of the shares issued by a company, representing ownership.
This isn't just a static list. A cap table is a living document. It changes every time new shares are issued, an employee exercises their stock options, or a new round of funding closes. Keeping it accurate is essential.
Why It Matters for Startups
For a startup, a cap table is one of its most critical financial documents. When you're just starting out, ownership is simple. Maybe it's just you and a co-founder, splitting the company 50/50. But as the company grows, things get more complicated.
You might hire key employees and offer them stock options as an incentive. Then, you might raise money from angel investors or venture capitalists, who will receive equity in exchange for their investment. Each of these events changes the ownership percentages for everyone involved. This process is called equity dilution.
A clean, accurate cap table shows potential investors that you're organized and understand the financial health of your company. A messy one can be a major red flag.
Founders use the cap table to make strategic decisions. How much equity should we set aside for future employees? If we raise $1 million at a certain valuation, how much of the company will the founders and existing investors still own? The cap table provides the data needed to answer these questions and model different scenarios.
A Simple Cap Table
The structure of a cap table can range from simple to incredibly complex. At its most basic, it's a table with a few key columns that identify each shareholder and their stake in the company.
| Shareholder | Number of Shares | Share Type | Ownership |
|---|---|---|---|
| Founder A | 500,000 | Common Stock | 50% |
| Founder B | 400,000 | Common Stock | 40% |
| Early Employee C | 100,000 | Stock Options | 10% |
| Total | 1,000,000 | 100% |
This simple example shows the initial ownership split. Founder A has 500,000 shares, which represents 50% of the total 1 million shares. As the company issues more shares to new investors or employees, the total number of shares will increase, and the ownership percentages for the existing shareholders will decrease. This is the core concept of dilution, and the cap table is the tool used to track it precisely.
What is the primary function of a capitalization table (cap table)?
When a company issues new shares to investors or employees, the ownership percentage of existing shareholders decreases. This process is known as _______.