A capitalization table, commonly known as a cap table, is a spreadsheet that shows the ownership stakes of a company. Cap tables are typically used for startups seeking seed funding or venture funding, but slightly more established companies also use them at many stages in the venture capital process. If your business is seeking funding, forgetting to create a capitalization table is a mistake when pitching to investors.
The data included on a cap table usually lists the various stakeholders involved in the company and the equity shares, preferred shares, options, or other investments they each own, as well as the various prices paid by each stakeholder for these securities. Only individuals or entities with ownership securities are listed on the cap table. With all of this information, a capitalization table shows all of the company’s ownerships stakes on a fully diluted basis in a concise manner.
Though there are no hard rules on how you create your cap table, it is common practice to list the founders of the company first, then key executive and employees, angel investors, and then venture capital investors. Review your cap table regularly to ensure it is up to date. As time goes on, stakeholder shares get vested and new investors may come on board. It is much easier to maintain a cap table on a monthly basis than to have to update it after many significant changes have occurred.
A capitalization table is a must-have for any early startup or small business that either has stakeholders already financially invested in the company or that is actively seeking outside investments. Failure to create a cap table is an amateur mistake that may turn off potential investors and hurt your chances of future funding.