Universidade Federal do Ceará
Departamento de Química Orgânica e Inorgânica

The standard of operation should remain straightforward while frequent updates are important alongside software utilization for streamlined operations. We encourage you to download the provided template and practice creating your own cap table. Stay tuned for upcoming posts in this series, where we will delve deeper into cap table management and advanced concepts.

• Most funding at this stage comes through SAFEs or convertible notes, which don’t show up as equity until they convert, usually in the next priced round.
• If your cap table doesn’t show the fully diluted impact of every security, you’re in trouble.
• In addition to Excel templates, many digital platforms provide comprehensive solutions for managing cap tables.
• The company’s valuation will likely change over time, and this is also recorded in the cap table.
• Before a new funding round, a pro-forma cap table can illuminate the dilution of existing shares resulting from issuing new shares to investors.

Ownership Percentages

At the minimum, you need to know how much is invested in each funding round, the pre- and post-money valuations, and any special terms attached to the funding. The pre-money valuation simply refers to the value of the company before the financing capitalization table vc example round. It’s also important to avoid overly complex structures that can make the cap table difficult to understand.

From a high level, a capitalization table serves as an extension of the term sheet by tracking the impact on the ownership structure of a venture-backed startup. The Cap Table is tracked by venture capital (VC) firms to provide a summary of the current capitalization (i.e. equity ownership) in a startup or venture-backed business. They may convert their preferred stock into common shares at any time, but they typically keep them until the exit because doing so gives them special rights and privileges – such as liquidation preferences. Following these best practices while being mindful of common mistakes positions your business to handle funding rounds more effectively.

🚩 5. No Exit Scenario Modeling

• For example, venture capital (VC) firms often invest using preferred stock, which gives them more downside protection if the startup fails or sells for a low price.
• A well-managed cap table enables clear visibility into a company’s financial structure, helping stakeholders navigate the complexities of investments, dilution, and compliance with confidence.
• During due diligence, this often results in last-minute scrambles to reconcile documents.
• A cap table functions beyond being just a document, because it serves as a fundamental tool for monitoring shareholding patterns and investments.
• The standard of operation should remain straightforward while frequent updates are important alongside software utilization for streamlined operations.
• One of the best practices is to schedule regular reviews of the cap table, particularly after any transaction, to incorporate changes promptly.

In the ever-evolving landscape of startups, a fundamental tool to decode equity ownership is the ‘cap table’, or capitalization table. This essential document provides a comprehensive breakdown of ‘who owns what’ in a startup, playing a vital role in decision-making for both founders and investors. It serves as a key component in due diligence, illustrating how each stakeholder’s equity position shifts in response to fundraising events. As a startup grows, the complexity of its cap table intensifies, making understanding cap table interpretation indispensable for potential investors.

Mastering Cap Table Templates in Excel for New Funding Rounds

Cap tables are an important and dynamic tool for managing a startup’s equity account and can be for valuation and to understand the potential for dilution from future investments. As a formal record of a company’s equity, it is used by founders, employees, current and potential new Investors, and tax authorities. Another critical update involves adjusting for any changes in the share price. New investment rounds might affect the company’s valuation, resulting in a new share price. It’s vital to modify the share price column in your cap table to reflect this update.

Stock options for employees are granted through Employee Stock Option Plans (ESOPs) at startups. The issue of ESOPs requires an update to the cap table which includes new potential shares. Proper management of dilution must be maintained by founders and investors to avoid underestimation of share dilution.

Bonus: Download the Full Cap Table + Waterfall Analysis Template (Series A & B)

Such capital acquisition enables companies to hire more staff while developing new products and growing their operations which converts dilution into a strategic component that has value. A cap table lists all the securities (shares, options, warrants, etc.) that a company has issued and who owns them. It’s used to track ownership stakes, manage equity, and plan for fundraising. The company had a further two funding rounds, Series A and Series B, in which it received US$7.5m and US$15m of investment respectively.

It is essential to update the table regularly to reflect stock options, grants, and any other equity changes. Being meticulous in this practice ensures that all stakeholders are properly informed, which can facilitate smoother negotiations and decision-making processes. Moreover, cap tables allow businesses to strategically plan their growth and funding trajectory by simulating future financing scenarios.

The VC Term Sheet establishes the specific conditions and agreements of venture investments between an early-stage company and venture firm. The term sheet is short, usually less than 10 pages, and is prepared by the investor. Even if the fundamentals of the business look strong, a confusing or unreliable ownership structure can delay, or derail, a deal. What starts out simple becomes layered with investor rights, new share classes, and shifting ownership stakes.

Setting the Stage Between Investor and Entrepreneur

Accurate VC returns analysis is key to evaluating startup investments. The Macabacus template calculates IRR and cash-on-cash returns, providing a clear view of expected profitability. By modeling multiple funding rounds, it helps investors compare exit scenarios and optimize decision-making.

Every company has unique equity arrangements that reflect its specific goals and growth stages. Tailor your cap table to capture these specifics, such as different stock classes, option pools, vesting schedules, and any investor preferences or special terms. The platforms provide important functions to generate accurate records for both investors and regulators when performing fundraisings and exits. The use of software minimizes mistakes while saving time and providing complete openness to operations. Any startup that obtains funding from multiple investors during multiple funding rounds needs a digital cap table to maintain operational efficiency and regulatory adherence.

Avoiding Common Pitfalls

But when they convert, usually at a discounted or capped valuation, they can cause unexpected dilution. Failing to model their impact leads to surprise ownership drops for founders and misalignment across the board. By Series B, the cap table includes multiple classes of preferred stock, each with its own terms. The governance structure matures, with a formal board and voting mechanics that reflect investor influence.

Whether you’re raising a seed round or preparing for an exit, the cap table is one of the first things everyone checks. So it pays to treat it like what it is, a critical business tool, not just a spreadsheet. Examples of popular cap table management software include Carta and AngelList, among others. These platforms offer robust solutions designed to streamline cap table management. Convertible notes and SAFEs (Simple Agreements for Future Equity) are widely used financing tools for startups, offering flexible funding options with unique conversion mechanics.