Cap Table 101
When embarking on the fundraising journey, you will inevitably come across the term "cap table," short for "capitalisation table." Essentially, a cap table is a table that outlines the distribution of ownership stakes within a company, including the allocation of shares among founders, investors, and other stakeholders. Some cap tables also provide additional details such as share classes and varying percentages of voting rights (which may differ from ownership percentages).
Initially, constructing a cap table for a startup is relatively straightforward. However, it can become increasingly complex to manage as subsequent funding rounds occur. At Inverse, we specialise in assisting founders with building their cap tables and other essential documents needed to initiate a funding round.?
In this article, I will present examples of a typical cap table during an angel round, incorporating an options pool reserved for key employees. Additionally, I will provide you with a template cap table that our clients have successfully utilised to secure funding from angels, venture capitalists, and crowdfunding investors.?
If you're interested in obtaining a copy of the template, simply comment on the post and I'll DM you the link. This template cap table has been used by our clients to secure funding from angels, top venture capitalists, and crowdfunding investors.
Below, I’ll provide an example and step-by-step guide to help you build your own cap table.
Last but not least, feel free to connect with me on LinkedIn and follow our Inverse account, where I frequently publish articles on financial models and fundraising.
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Cap table - two sides
In its most basic form, a cap table consists of two sides: one illustrating the company's current ownership structure and another reflecting the post-funding scenario. This enables all stakeholders to comprehend their ownership positions before and after the infusion of funds.
Example:
Let's consider a startup that has issued 9,000 shares to its founders and existing shareholders. Additionally, they have set aside 1,000 options (10% of the total shares) for their key hires. This information is depicted in the table on the left.
Now, suppose the startup proceeds to raise £100,000 in fresh funding at a pre-money valuation of £900,000. This implies that the investors will receive a 10% ownership stake (thus diluting the shares held by existing shareholders/founders by 10%).
One of the shareholders, Shareholder B, exercises their pre-emption right and invests £10,000 in this round, allowing him to receive 1% new shares and to maintain their 10% shareholding. Consequently, £90,000 remains available for new investors, who collectively receive a 9% equity stake.
As a result of the funding round, the options pool experiences dilution, decreasing from 10% to 9%.
Step-by-step
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The cap table provides some key information for stakeholders
There are a couple of important formulas every founders should know
Post money valuation = pre-money valuation + Cash raised
Share price = pre-money valuation? ÷ total shares (including options) pre-funding
Total equity offered = cash raised? ÷ Post-money valuation
Equity offered to individual investor = investment amount? ÷ Post-money valuation
Options Pre-funding or Post-funding?
Let’s consider a case where the investors required the options to have 10% ownership ‘Post-funding’, we’ll need to work backwards. You can increase the number of options until the post funding shows 10%, or, we can use the Excel feature ‘Goal Seek’ to compute the number.
Goal Seek (Excel tips)
The "Goal Seek" function in Excel is a powerful tool that allows you to find the input value needed to achieve a specific desired result in a formula. It is particularly useful when you have a target value in mind and want to determine the input required to achieve that target.
To use the Goal Seek function in Excel, follow these steps:
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I have written a separate article on the impact of investors with liquidation preference which you can read about it here. In here, I explained how investors can get their return beyond the simple equity ownership.
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1 个月Incredible!
Director, C-Suite Executive
1 年Wonderful share. May I have the template?
Founder @Yuuji Shopping | Redefining your Shoe Game
1 年I love this; as a newbie founder this information is gold
Entrepreneur | Space-Tech Visionary | Industry Expert in Space-for-Earth Applications | Startup Mentor | Driving Innovation in Satellite Data
1 年Great article and timely. I constructed one this morning but I will take it from a pro. Could I get the template, please, Ivan?
Head of Investment, Innovate UK | Connecting investors, innovators, industry and government to fund the future economy | UK & International investment networks
1 年Great share, thank you :)