A spreadsheet to manage your cap table? Please don't.

A capitalization table (cap table for short) is essential for any startup or early-stage company. It's a record of who owns equity in the business and how much each shareholder owns. Even if you have just a few founders and investors with equity (or a handful of employees), it's critical to track it precisely (along with all the paperwork).

The problem I see all too often: founders or even (gasp) finance folk using a spreadsheet for their cap table. I'm here to tell you this is a terrible idea.

Spreadsheets are too unstructured of a tool when it comes to something as important as your cap table. Cap tables are a solved problem, so ditch the spreadsheet.

But I love my spreadsheet!

The biggest danger of using spreadsheets for your cap table is formula errors. It's more common than you think, and you won't find out about it until push comes to shove in your next fundraising round. There's even a study out there that shows that 88% of spreadsheets have errors.

Spreadsheets can also be messy and difficult to interpret, especially as the data set of outstanding stock options grows. As a founder or finance person, you'll frequently need to check how many shares or options outstanding someone has. For example, it's helpful info for HR during the hiring process; it's much easier to attract qualified candidates with an appropriate equity offer. It's also relevant for talks on raises and promotions.

Spreadsheets are clunky here. Even worse, you risk modifying the data. Hope you didn't sort that data incorrectly! ??

Enter equity management platforms

In contrast, cap table software provides a clean and easily interpretable interface. It also lets you grant read-only access to users. As a result, it retains its accuracy and is a more efficient way to manage your company's equity.

Most importantly, your equity management platform will give you a single source of truth for your equity data, which you need for auditing and compliance purposes. There are no version control issues and no lost files. If you ever need to issue new shares or make other changes to the equity structure of your company, good cap table software will make it easy to do so.

How to choose the right equity management platform for your business

Here are some of the major factors to consider when buying cap table software:

• Pricing - some products charge by the number of seats, so you'll need to determine how many users will need access to the system.
• Features - you'll want to store plan documents and signed option agreements alongside each option or stock certificate in the tool. Also, you'll probably need other features like 409a valuations and scenario planning.
• Integrations - see if it integrates with your HR system. If so, you may be able to automate certain tasks and paperwork approvals when an employee is terminated.

The moral of the story is…

Keeping track of stock options helps prevent disputes down the road. Equity management platforms are powerful tools that do this for you. In short, they protect your company's interests. When picking one for your business, be sure to consider your needs and the features offered by each option. As long as the tool you choose has the functionality mentioned above, I'm not partial to any of them. Whether it's Carta or TWO12 or any of the others, please use something. As long as it's not a spreadsheet!