Who owns what’s in your startup?
If you are bootstrapped and making it work. Dude, hats off! You rock! You don’t need to really care about your ownership structure.
But… If you are like 99% of founders today who are building or hoping to build a VC investor-funded startup, then I’m sorry!
Your cap table matters and this is why I am here, to show you how to create an ultimate startup cap table example and return analysis template
If you don’t care, that’s fine. But the moment you start talking to investors you will very quickly realize that the only thing investors care about is how much they own. They know that from your cap table.
Getting into details for those that care
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 up, you can truly understand what you own in different scenarios, even after all sorts of complex things like the effects of liquidation preferences, discounts on convertible debt, and the option pool shuffle happens. More importantly, it helps you to not confuse ‘basic’ stuff like your ownership being based on post-money valuations and not pre-money.
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.
As an investor, you might say 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 co-founder, “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 to demand 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.
If you stare at an investor with a pale, blank face when questioned ‘what does your cap table look like?’ you can be pretty sure that what comes next will not be super auspicious.
FML. Cap table calculations.
Trust me, I know.
A couple of years ago I was just like you. I didn’t know anything about cap tables. Well, I knew something about them, just not much. I saw some super simple venture hacks model and their video, but frankly, that’s so ghetto simple. It seems like you know it all… but you really don’t.
Whether you want to do some basic stuff, or are a dap hand and know all the stuff most don’t know they don’t know… you can do it now.
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