A capitalization table, or cap table as the cool kids call it, is a spreadsheet of sorts that breaks out founder and investor percentages of ownership, dilution of equity, and value of equity in each funding round. It’s basically a list of people with ownership in the company from most important to least.
Often used for startups or young ventures, the capitalization table shows the full picture of ownership stakes which enables you to see a company’s overall capital structure at a glance. Founders come first, followed by executives and key employees with equity stake in the company. After that comes investors, like the angel investors and venture capital firms, and then, last but not least, the others involved in the business plan.
A basic (not like “OMG it’s like so basic” but more like the version you’d typically expect to see) capitalization table for a startup lists who owns stock, warrants, options or other investments. A more complex (AKA not basic) table can also list potential new funding sources, mergers and acquisitions, and public offerings.. Every line on the capitalization table should add value to the business, making it more attractive to employees, investors and partners. No placeholder names here.
Security owners (the important people) usually appear on the Y axis and the types of securities are found on the X axis. A good capitalization table is simple and well-organized so that anyone could understand it. It says who owns securities and what securities are still up for grabs. The table for a CEO might look different than one for a CFO.
As a startup evolves and changes, the capitalization must remain up to date. Once new shares of a stock are sold or made available, for example, the capitalization table would then be updated to reflect the change in ownership as well as available stock. Other things that can change the table are deleting options when employees quit or when you exercise vested options once an employee or investor reaches a certain level of tenure.
Basically, think about it like this. As an entrepreneur, every damn decision you make will be reflected on that table in one way or another. It’s a big job but somebody has to do it.
Now that we have some new investors, we really need to update that cap table.