What is a cap table?
In one of our previous articles, we spoke about the funding options for business owners, most of which covers fundraising through equity or shares.
As the number of investors / shareholders in your company grows, you should always maintain an up-to-date cap table as this will be important for your future fundraising rounds.
Capitalisation table or cap table, is simply a table that helps you keep track of the list of shareholders and the ownership each shareholder has in your company.
As a start, you can maintain this cap table on a simple spreadsheet, or even use a cap table management software as your company’s equity structure becomes more complex when you have a larger number of shareholders.
In short, a cap table allows you to see key information of the company’s equity structure, such as the ownership breakdown, invested amount, and the change in your company’s valuation.
Why do we need a cap table?
Fundraising
Cap tables are most commonly used when you are planning to raise external funding from investors. You need to be prepared to show investors what your company’s ownership structure is like even before they decide to invest.
This would help potential investors understand who are the current shareholders of your company, how much has been invested, and what was the company’s valuation at that point in time.
Recruiting and retaining talents
Business owners often find it hard to look for good talents to join the company as well as retaining them in the company. Having a proper equity stock option plan (ESOP) is a good way to recruit and retain talents. This would help align the employee’s interests along with the company’s goals because employees will feel a sense of ownership when they have a share of the company. Hence, they would directly benefit from the success of the company and this would lead to overall performance improvement.
A cap table is used here to help keep track of when the employee’s options are vested and exercised. This is important because exercised options would be converted into shares of your company and this will eventually dilute the ownership percentage of existing shareholders.
How to make a cap table?
Here is a cap table template that we’ve created to save you some time of creating your own.
In the following sections, we will walk through the process of creating a cap table. For simplicity purposes, we will not be including options and convertible loans in the examples.
Firstly, to create your own cap table, you need to understand and prepare these few key elements:
List of shareholders & existing number of shares
A list of shareholders may include the company’s founders, board members, investors, advisors, or even employees. Typically anyone that owns shares in your company, be it an individual or a legal entity, would be considered as your company’s shareholder.
Next, find out what is your company’s issued and fully paid-up number of shares. If you are not sure about this, you may check with your company secretary.
Make a list of shareholders and the number of shares currently owned by each shareholder in your company.
| Shareholders | Number of shares | Current Ownership(%) |
|---|---|---|
| Founders Round | ||
| Founder 1 | 2,000,000 | 50% |
| Founder 2 | 2,000,000 | 50% |
| 4,000,000 | 100% |
Pre-money valuation, Post-money valuation & Investment amount
Pre-money valuation refers to how much the company is worth prior to the investor’s investment. You can think of pre-money value as a number negotiated between business owners and investors on how much the company is worth. This will determine how much the investor will pay for each share in the company. For now, we will not go into too much detail on how to come up with a valuation for your company.
Investment amount refers to how much money the investors will be investing in your company to purchase a certain number of shares. Investment amount differs depending on the type of investors and round of fundraising you are at (e.g.seed round, angel round, series round, pre-IPO and etc.).
Post-money valuation refers to how much the company is worth immediately following an investment made by the new investor.
Example:
VC firm is going to invest RM1 million into your company based on a RM4 million pre-money valuation. So the post-money valuation of your company would be:
Post-money valuation
= Pre-money valuation + Investment amount
= RM4 million + RM1 million
= RM5 million
So what does a cap table look like?
Putting the examples above together, we would be able to come up with a cap table before and after a new investment has been made into the company.
Here’s an example below, the cap table would provide a quick view of how much is owned by each shareholder, the amount invested by each shareholder and the change in company’s valuation after each round of fundraising:
| Shareholders | Number of shares | Price per share ($) | Current Ownership(%) | Invested Amount ($) | Pre-money Valuation($) | Post-money Valuation($) |
|---|---|---|---|---|---|---|
| Founders Round | ||||||
| Founder 1 | 2,000,000 | 1.00 | 50% | 2,000,000 | 0 | 4,000,000 |
| Founder 2 | 2,000,000 | 1.00 | 50% | 2,000,000 | 0 | 4,000,000 |
| 4,000,000 | 100% | 4,000,000 | ||||
| Seed Round | ||||||
| Founder 1 | 2,000,000 | 1.00 | 40% | 2,000,000 | n/a | n/a |
| Founder 2 | 2,000,000 | 1.00 | 40% | 2,000,000 | n/a | n/a |
| Seed VC | 1,000,000 | 1.00 | 20% | 1,000,000 | 4,000,000 | 5,000,000 |
| 5,000,000 | 100% | 5,000,000 |
Try out our cap table template here as a start, or contact us if you need help with managing your cap tables.