Latest posts by Alexander Jarvis (see all)
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- Quarterly vesting calculation for staff incentive ESOP plans - October 12, 2017
- How do you value your social media startup with investors? - September 19, 2017
A cap table is something that every startup needs, but something no one really knows how to do. Furthermore there is an implied expectation that founders have one and know how to do them. Like an investor says to a founder “Send me your cap table over this evening will you?”, with the founder saying “Sure!” only to go back to the office and say to their cofounder, “what the hell is a cap table?”
There is actually a pretty hilarious episode of the TV series ‘Silicon Valley’ entitled “The Cap Table” that goes exactly as above. Sensing the ignorance of the startup, Peter Gregory (the VC), goes into shock, exclaiming to his Associate, Monica, “What did I buy?” He then goes on demanding a cap table and business plan from Richard (the protagonist of the series).
Richard doesn’t know what it is and goes to Wikipedia to find out:
What is a cap table?
It is an excel spreadsheet that sets out in a ledger who owns the startup at different periods of time. It is a list of the shareholders and how much each person owns. It tells you how much money you will make if you exit, which is what I am sure you want to know!
Why do you need one?
Think of it this way, when you start out as a founder you own 100% of the company, right? Well you raise a Seed round and now investors have a chunk. How do you know who owns what? The cap table tells you.
Furthermore, by having one properly set out you can truly understand what you own in different scenarios and after all sorts of complex things happen such as effects of liquidation preferences, discounts on convertible debt, the option pool shuffle and more importantly, not confuse ‘basic’ stuff like your ownership being based on post-money valuations and not pre-money.
Introducing my template!
To help founders set up and maintain their cap table I took the liberty of making one for you.
You can download my template by clicking the pretty box on the right.
What my template cap table does
The cap table enables you to understand the ownership of your company and how it evolves across multiple financing rounds, as well as play with all the assumptions to support how you structure your next financing round.
The template accounts for most for what you will typically see with investors. It covers you for:
- Initial founder table
- Angel investment (Both as convertible debt which converts at Seed stage and straight priced round)
- Seed investment (Assuming 1x strategy preferred liquidation preference)
- Series A, B and C (Again structured as the Seed investment)
In addition to the cap table, I have integrated a waterfall returns analysis so you can calculate exactly how much people will earn and at different exit valuation scenarios. I have not seen someone do this before, so I think it is pretty cool.
What my template cap table does not do
As you are no doubt aware, things can get pretty complicated and therefore my model does not account for every scenario. Assuming you are dealing with reputable investors, you won’t ever really have to change this (Such as account for multiple liquidation preferences and participating preferred shares).
I do not assume that you will:
- Get funded with warrants
- Assume there is a vesting schedule on shares (Though there is a switch to remove unissued shares from the ESOP pool)
- Have debt and interest that converts to shares
- Have multiple liquidation preferences
- Participating preferred shares
- Different terms for investors at each stage of funding
I am aware that there are additional things to add into the model, such as calculating effective valuations (Adjusted for ESOP issuance etc), which are just an FYI. Maybe I will upgrade the model in future. 😉
Your cap table is important. I did this myself and it has not been audited by anyone. You ultimately will need a lawyer to ratify it. I do not take any responsibility whatsoever with what you do with it.
Also, there is nothing new under the sun. I have reviewed all the publicly available cap tables (including one by S3 Ventures that was decent) and my model feeds on existing logic.
I have made a rough guide to using the cap table template, which has been posted to SlideShare and is viewable below on this blog. You can download it if it is easier.
I have automated the whole model so there are only a few places you need to plug in your numbers. You need to understand the formulas too though, to comprehend what is actually happening and in case you need to account for variations of structures!
Have a play and let me know if you have any questions or feedback! There may well be errors, so help everyone out and share if you find something!