A capitalization table (often referred to as a “cap table”) is a tool used to display the ownership of a company. Given that venture-backed firms are constantly raising new capital, the ownership structures of these companies can be relatively complex as each round of funding may bring in new owners and is often based on different valuations. Consequently, it is important to have a tool to track the ownership levels of these firms.
At XSeed, we use a relatively simple Excel template that lays out the type and ownership of the various securities that are issued by the firm. It sets out ownership of the firm in terms of the types of securities issued, the number of shares by class, and each investor’s ownership percentage of each type of security.
The first column of the cap table shows the set of founders, employees, advisors and investors in the firm, categorized by the type of security held. Common stock is the most popular type of equity and it is generally held by founders, employees and advisors. Preferred stock is generally held by investors who supply capital to the company. Usually, startup firms issue securities in rounds, and the different series are labeled Seed, Series A, Series B, and so on, according to the order in which they are issued. An option pool refers to the shares of a startup’s common stock that is set aside for future issuance to employees, directors, advisors, and consultants.
Another objective of the cap table is to allow management and investors to track the valuation of the firm associated with each round of financing, and the impact to corresponding ownership levels. Valuations are generally reported in terms of pre-money and post-money valuation. The pre-money valuation is essentially the company’s deemed value prior to a preferred stock financing and can be calculated by multiplying the number of shares outstanding before the financing times the price per share in the company’s current preferred stock financing. The post-money valuation is the value of the company after an investment has been made and can be calculated by multiplying the number of shares outstanding after the financing times the price per share in the company’s current preferred stock financing.
If you need to build a cap table for your startup, hopefully this will serve you as a template to start. Feel free to use, improve and modify.
Disclaimer: Most law firms in Silicon Valley have very sophisticated tools for tracking ownership levels of employees and investors, for calculating the price-per-share of rounds, etc. This spreadsheet may not cover every corner case in a firm’s ownership structure, but it is a quick and easy way to model out financing rounds and track the impact of capital raises on various constituencies. Be sure to work with your professional advisors to ensure that you have a verified cap table for your financing transactions.