A capitalisation table is also known as cap table. It is a spreadsheet which is used by the ventures at the early stage or by the start-ups to keep track of the company’s securities such as warrants, preferred shares, equity shares, ownership of these securities and the amount paid by the investors for gaining this ownership. The spreadsheet also contains the information about the percentage of the investor’s ownership, value of them and dilution over time.
Creation of a capitalisation tables is given priority over other documents during the early stages of a business. Once the company has undertaken several rounds of financing, the cap table becomes complex as it lists the range of sources of financing, mergers and acquisition related information, initial public offering and so on.
The capitalisation tables are not limited to recording financial transactions as it also comprises of legal documents like transfers, stock issuances, cancelation, conversion to name a few. It is the responsibility of the executives to manage the documents and update the transactions and accurately show the occurrence of events since the inception of the company.
The capitalisation table’s simplest form begins with listing the shareholders followed by their ownerships. These tables are utilised by the entrepreneurs, investment analysts and capitalists to assess events like employee stock options, ownership dilution and issuance of new securities.
The capitalisation table lists all types of equity ownership, share prices and individual investors. The complex capitalisation table includes information about the mergers and acquisitions, funding sources, hypothetical transactions, and public offerings.
These tables are employed by the private companies privately to deliver information to the investors and calculating the market value of the company. Chiefly, the table projects the market value of the company along with its components. Business managers consider these table as a key point of reference for making all crucial financial decisions that have a significant impact on the market value and market capitalisation. Therefore, it is important that the capitalisation tables are accurate, updated on regular basis and are customised in accordance with the business requirements.
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Spreadsheets are utilised by the companies for the creation of the capitalisation table during the beginning stage of the ventures. The table should have an organised and simple layout, that is, the table should be efficient in highlighting the ownership of the shares along with the shares outstanding. The most common structure of the capitalisation table includes investors names on the Y-axis and the type of security on the X-axis.
Moreover, the companies can make use of the templates which allow the company to add additional information and charts which affect the business. The first row of the capitalisation table projects the number of the company shares and the subsequent information includes the following information:
The capitalisation table has a separate table which includes the following information:
The capitalisation table begins with the information about the company’s founder followed by the information about the executives and employees (who own shares in the company). Afterwards, the information related to angel investors and capitalists is provided.
The capitalisation table plays an important role as it keeps a record of who owns how much of the company’s equity. The information provided by the table affects the pricing of the fundraising rounds of the future and major decisions of the company.
A capitalisation table usually appears like a list of names of founders, different types of investors, stakeholders, employees who own shares, to name a few, on one axis. The other axis highlights the information related to the ownership of the names such as the type of security owned, quantity of the security, date of investments, percentage of company’s ownership and so on. There is no standard format for the capitalisation tables and a company can customise the tables as per their requirements.
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Earlier, the legal ownership of the shares of a private company was based on the paper shares which were issued to employees, investors, and founders. Few private companies still utilise the traditional model and have lawyers who issue paper securities on behalf of the company and create capitalisation tables in excel. This method is inefficient and antiqued.
The manually updated capitalisation table has multiple versions. One version is provided to the attorney in exchange for the hourly fee and another version is provided to the company’s managers. In case, the lawyer forgets to update the transactions in the capitalisation table, or the company forgets to update the lawyers regarding any transaction, then the truth will become non-existent. In effect, things can get complicated and the decision making process is also affected.
It is an expensive affair to maintain capitalisation tables through lawyers as the lawyers must invest many hours for issuing options in accordance with the concerned authority’s issuance rules. The cost will add up when the company decides to conduct another round of fundraising.