top of page

Strategies to Prepare a Simple Cap Table

A cap table or capitalization table is a financial document that summarizes the ownership of a company, typically in the form of a table that shows the number of shares owned, percentage of ownership, and type of share ownership for each shareholder. As a key part of the corporate financial record-keeping process, the purpose of cap tables is to provide a snapshot of an equity structure at any point in time. So, how to prepare a simple cap table? what information should be included in it? what are the best strategies for creating a cap table? The purpose of this article is to serve as a guide by providing some basic tips on how to prepare a cap table.

Strategies to Prepare a Simple Cap Table

Cap table for Business


Generally, in privately held companies, there are a number of shareholders including employees, investors, founders, board members and others. In order to manage all the shareholders and their respective holdings, a cap table comes into play. The cap table serves as the baseline for any business entity as it maps out the ownership structure of the business. A cap table must be in a format that is easy to read, clean and comprehensive at the same time. The objective of the cap table is to show the percentage ownership of each shareholder clearly.


What is a cap table?


A cap table is a summary of the ownership structure of a business. It details all the shareholders, their respective number of shares and the percentage of ownership. Essentially, Excel was used to create the cap table in most cases, however, with the advancement of technology, there are various cap table management software available online. In order to compete in this dynamic market, businesses need to adapt to these new technologies and improve upon them. Basically, a cap table plays an important role in facilitating communication between shareholders, management, and prospective investors.


Importance of a cap table


Other than providing a snapshot of the ownership structure, a cap table is used for a number of other purposes as well. Here are a few uses of a cap table:

  • Identify dilution - After every major financial transaction, there is always the question of what the dilution is. A cap table provides a detailed analysis of all the changes that have taken place in a company with regard to equity ownership.

  • Prepare a simple cap table for investors - Potential investors often conduct due diligence on the ownership structure of a business. A cap table provides a framework that can be easily followed and allows investors to analyze the financial performance of the company.

  • Provide transparency - A cap table is an important instrument that provides stakeholders with a clear picture of the key financial and business information. It enables stakeholders to have complete transparency in terms of equity and management levels.

What should be included in a cap table?


In order to be certain of getting the right cap table, it is important that you get all the key information in the table. Following are some of the key items that should be included in the cap table:

  • Authorized shares - A cap table should include all the authorized shares of a company. It is the maximum or total number of shares that the company can issue, and it should be clearly stated in the table.

  • Outstanding shares - A cap table should have a record of all the outstanding shares that are issued. It is the number of shares that are currently in circulation with the company and its shareholders.

  • Unissued shares - As a founder, you might want to reserve a certain percentage of your shares for future financing purposes. Unissued shares are the number of shares that are yet to be issued, and hence they should be recorded in the cap table.

  • Option pool - The shares that are reserved for the stock option scheme should also be included in the cap table. The number of shares that are set aside during the vesting period of stock options should be noted down properly.

  • Fully diluted shares - The fully diluted shares are the total outstanding number of shares after taking into consideration all the dilutive effects such as convertible debt, outstanding options and warrants. A cap table should have a record of all the fully diluted shares.

  • Other details - The name of each shareholder, the number of shares owned, the percentage of ownership for each employee, the type of share ownership etc. should be included in the cap table.

What is cap table management software?


It is clear that a cap table is a simple yet important document. With the evolution of technology, cap table management software has become the latest trend. Cap table software offers a distinct range of benefits that make it more convenient and efficient than traditional Excel-based cap tables. Using cap table management software, businesses can easily manage, monitor, alter, and update their cap table in real-time. What's more? With a few clicks, you can have a comprehensive cap table that shows all the essential details as well as an analysis of the ownership structure of a business. Therefore, opting for cap table management software is a practical decision that can help you save time, money, and even reduce human errors.


Preparing a cap table


Now that you have learned about cap tables, their purpose and some key elements that should be included in a cap table, you are probably ready to get started with the process of creating a simple cap table. So, do we need to understand the process of creating a cap table even by using the software? Well, yes, cap table management software definitely streamlines and simplifies an often-complicated process. However, from data inputs to formatting, there are a few basic steps that need to be followed while creating the cap table.


Steps to create a cap table


There are various cap table management software available online. However, Eqvista's online cap table management software is simple, hassle-free and easy to use. It offers a range of features that help you with the entire process of creating a cap table. Here's a step-by-step guide on how you can create a simple cap table in Eqvista:

  • The first step is to fill in the details of your business in the questionnaire. The questionnaire is composed of a number of questions that helps the software determine the necessary information to create a simple cap table. It includes questions related to the recent financial event, warrants, options, convertible securities, transfers, and funding rounds.

  • Once you are done with the questionnaire, you need to feed in all the relevant details of your shareholders. This includes the name of each shareholder, the total shares and percentage of ownership held by each shareholder, price per share, event date and the type or class of share.

  • After the shareholder's details are filled in, the next step is to fill in the details of your grants. It consists of filling in all the relevant information related to stock option grants, warrants, vesting schedule, strike price, and the number of shares. This will enable you to track and monitor the usage of other instruments as well.

  • In case of a transfer of shares, you need to enter the details of each transfer. Sales, repurchases, transfers or even cancellations of shares must be specified and recorded in the cap table. It includes the recipient's name, the number of shares transferred, the price per share and the type of share.

  • If there are any convertible notes or convertible bonds issued, then a record should be made of their details. The details include the name of each issuance, the number of shares involved, the price per share, conversion terms and conversion price. It is essential to note that the issuance of convertible notes or convertible bonds must only be recorded in case the shareholding is affected.

The below image is a sample cap table that has been designed using Eqvista's online cap table management software. With 5 easy steps, you can design a simple cap table and have it ready in no time. It is crucial for you to follow the process accurately so that the cap table is error-free, comprehensive and accurate.

Eqvista's online cap table management software

When should you update the cap table?


No matter how well-structured a cap table is, it needs to be frequently updated in order to remain accurate. A cap table is considered a living document, and it is essential to update it in real time. As soon as there is a change in the ownership structure, the record of that change must be made in the cap table.


The time to update a cap table is also contingent on the frequency of the transaction, i.e., you need to update it only when there is an actual change in shareholding. Typically, after a financial event wherein the shareholding is affected, the cap table should be updated. It must be noted that a cap table is only useful when it is regularly updated.


How to update a cap table?


When using Eqvista's online cap table management software, you can easily update the cap table in no time. The software is equipped with a simple update process wherein you can easily input the details of the change that has taken place in your company. You can add new shareholders, modify existing shareholders, transfer shares, create new securities etc. All you need to do is fill in the details of the change and hit update. Thus, you can have an updated cap table in a matter of minutes.


What are the benefits of using cap table management software?


Instead of manually creating cap tables through Excel, it is much easier and more convenient to create a cap table with the help of cap table management software. Below are some of the advantages of using cap table management software:

  • Cap table is not a one-time process. Even if you have a fully developed cap table, you need to update it regularly. With the help of cap table management software, you can easily manage the cap table, update it and make necessary corrections in real-time.

  • Using cap table management software offers an organized, systematic approach to creating a cap table all in one place. It helps in ensuring that the cap table is error-free and comprehensive.

  • Manually keeping track of various issuances and ownership structures is time-consuming and complex. Reducing the risk of human error and cutting out the tedious and lengthy process is the main advantage of using cap table management software.

Conclusion


Preparing a cap table is essential for any business to remain organized and up-to-date on their equity. It requires much attention to detail, as it must be accurate in order to ensure the rights of all stakeholders are represented fairly. With the right understanding and application, creating a cap table can be less of a task. By following simple components like determining financing structure, knowing your total shares outstanding, staying agile with updates, detailing future debt and equity rounds, considering vesting schedules and tracking adjustments along the way one can easily create a comprehensive cap table that reflects every stakeholder’s rights accurately. The steps outlined in this article can help equip entrepreneurs with the information they need to set up an accurate and updated cap table efficiently.




Fuel Your Startup Journey - Subscribe to Our Weekly Newsletter!

Thanks for submitting!

bottom of page