An introduction to cap tables
“Our potential investors asked as to present the cap table. What is he/she looking for?” I’ve been asked this question occasionally in sessions with startups looking for funding.
A cap table is a table that shows the shareholder structure of a company. It shows who owns which portion and what is the value of this portion. This is an important overview when it comes to funding rounds as it facilitates potential investors to see who the founders are, which employees have shares (since when and how many shares) and which investors or advisors are on board and what their shares are.
In the early stage, a cap table looks quite simple, but after some funding rounds, it will get challenging. Startups need to update the table continuously to ensure the most recent changes are reflected.
So let’s take a simple example. Company A is an early-stage startup with three founders. Each founder invested a portion into the company and holds the shares as shown in the table.
After some weeks of discussion, the founders secured a seed investment from three investors.
17,222 additional shares have been issued and €310,000 have been raised. Due to this fundraising, the ownership of the founders diluted and decreased from 28.6% to 19.1% (for A and B) and from 42.9% to 28.7% for Founder C.
And after an additional funding round, the table will change again.
And later on, there will even be preferred shares, stock options, etc.
But for the sake of simplicity, I excluded these from here.
It is important to maintain the table up to date and be aware of. Even though the table looks quite easy, it is paramount to understand how it works and why investors require this when it comes to fundraising.