Understanding the Value of a Capitalisation Table

A capitalization table is a comprehensive representation that shows the different features of a company such as the stakeholders, securities, and particular circumstances that can influence the ownership of the business in the future. Capitalization table exists in different forms. While many companies rely on it to know the names on a company’s share register, it is also a source of reliable information that can be used to make better decisions in the company. Why you need a capitalization table Many companies look for external investors to help grow their businesses. Among the documents that will be required by potential investors is the capitalization table. It will reveal the main stakeholders in the company. In a case where the investor decides to provide funding for projects, they can calculate the potential ROI from the information obtainable from the capitalization table because it also shows the company’s securities and their value. Is there a particular structure to create for the capitalization table? The methods used to create a capitalization table will ultimately depend on the type of company. There is no particular order for the creation of a cap table. While the format may change the information remains the same. The capitalization table is used by many people in the company because it is a huge source of information. For example, when new shares need to be issued by the company, the board members refer to the capitalization table. In addition, the company secretary can determine who has the authority to approve the issuance of shares. The information from capitalization table can also be used by investors to choose the best venture capital firm during an equity raise. Information required to create a cap table The following is a breakdown of the information that you can add to a cap table:

• The identity of the company’s founders and their percentage holdings in shares
• A comprehensive representation of an employee share option (if it exists) as well as the terms and conditions for this plan.
• Identify if previous investors have been promised shares (including preferred shares) in return for their investment?
• Where applicable, the details of special compensations given to advisers, partners and key employees should be included.
• Information about the company’s shareholders.
• The details of other instruments used by the company and the people who control these aspects.

A simple cap table format You can follow this format to create your cap table. It should clearly show the securities, and their classes and a list for each detail added.

• Enter the name of security holders as it is written on the related document, for example, names on share certificates and SAFE agreement.
• Enter the dates each security was issued.
• Identify the number of shares issued against each security, for example, the number of shares the holder of security stands to gain.
• Enter the dates the security was sold, transferred, or canceled. It should also be noted if the particular security is no longer outstanding.
• Indicate the amount paid for the security.