A “Cap Table” is a List of Your Company’s Securities
At its most basic level, a cap table is just a list of your company’s securities (i.e., stock, options, warrants, etc.) and who owns those securities. A cap table should tell you “who owns what.” More complex cap tables may also include formulas that model out various hypothetical transactions (e.g., new financings, sales of the Company (M&A) or public offerings). Cap tables can be summary in nature (e.g., grouping all holders into simplified buckets such as “founders” and “investors” and/or grouping multiple series of preferred stock into a single “preferred stock” bucket) or detailed in nature (e.g., providing granular detail on the holdings of each individual owner and each individual type of security). There is no one right or wrong format for a cap table. It all depends on how you will be using the cap table.
Your cap table must be current at all times to make good decisions
You need a cap table because, as an entrepreneur, you will be constantly making decisions that impact your capitalization and/or are colored by your capitalization. For example, if you are considering a new financing, you need to be able to quickly run scenarios based on different pre-money valuations, different round sizes, different available option pool targets, etc. Or, if you are recruiting a new COO and the candidate asks for options covering a certain percentage of the company, you need to be able to quickly determine whether you have sufficient shares available in your option pool, determine how dilutive the new grant will be to other holders and calculate the exact number of shares that represents the requested percentage. If you don’t have an accurate and well-organized cap table then you will be flying blind and unable to quickly make good decisions quickly. An accurate and well-organized cap table will empower you to make good decisions quickly.
There is no “right” way to format your cap table: keep it organized and simple
As we mentioned above, there is no one right or wrong format for a cap table. It all depends on what questions you are trying to answer. The right cap table for a CEO might look different than the right cap table for a CFO. And the right cap table for a company that is trying to analyze multiple VC term sheets might look different than the right cap table for a company that just closed its Series A financing. So to answer this question, we will assume you are the typical founder/CEO of a company that is either venture backed or on a trajectory to receive venture financing and give you the following general tips that should apply in almost all situations:
- Keep it Organized and Simple. As we noted above, at a minimum you are going to want to be able to quickly tell what securities are outstanding and who owns those securities. So your cap table should generally be organized with the list of security holders along the Y axis and various types of securities along the X axis. All holdings of a particular holder should generally be shown on a single row. Your cap table should also be free of extraneous information, formulas, notes, etc. We often see cap tables where it is impossible to quickly determine who owns what because of illogical organization and the inclusion of extraneous information.
- Tailor Your Cap Table to Your Corporate Documents. If your company is venture backed, then you are almost definitely governed by “protective provisions” that require you to obtain various approvals prior to taking certain actions. For example, let’s say that in order to approve a new financing, your charter requires you to obtain separate consents from (i) a majority of the Series A and B shares together and (ii) a majority of the Series C shares. In this case, your cap table should include columns that separately show you (a) the percentage of Series A and B shares (together) held by each holder and (b) the percentage of Series C shares held by each holder. This will allow you to quickly tell who you’ll need to collect consents from in connection with your new financing. You shouldn’t have to do these calculations from scratch each time you open your cap table.
- Use Microsoft Excel. Over the life of your company, you are going to need to share your cap table with tons of folks and it should be in a format that is easily accessed and manipulated by others. Google docs is OK, but not everyone uses it and it doesn’t have the full range of handy formulas that Excel has.
- When in Doubt Ask Your Lawyer for a Sample. You can download a sample simple cap table and sample cap table with pro forma calculations based on new round pricing from Cooley GO Docs. These documents may not be appropriate for your particular circumstances. If you aren’t sure what kind of cap table you need, you should consult with an experienced startup company lawyer.