What Is a Capitalization (Cap) Table?
Let me explain what a capitalization table is—it's a detailed breakdown, usually in a spreadsheet or table format, of your company's ownership structure. It shows who holds equity and in what proportions. You might hear it called a cap table, and while it's most common for startups and early-stage businesses, any type of company can use one.
These tables cover all of a company's equity ownership capital, like common equity shares, preferred equity shares, warrants, and convertible equity.
Key Takeaways
You need to know that the capitalization table is essential for financial decisions involving equity ownership, market capitalization, and market value. It helps private companies maintain the calculation of their market value. They're also important for shareholder reporting in the private market and for marketing new capital issuance.
Understanding a Cap Table
A basic cap table lists each type of equity ownership capital, the individual investors, and the share prices. If it's more complex, it might include details on potential new funding sources, mergers and acquisitions, public offerings, or other hypothetical transactions. Private companies use these tables privately to provide information on investors and market value.
Imagine a table that shows the total market value of a company and its components—it's a key reference for business managers in every financial decision impacting market capitalization and the company's market value. Make sure your cap table is accurate, customized to your business's needs, and regularly maintained so you can base decisions on the most current information.
Remember, a capitalization table is a simple, organized document that displays the total ownership capitalization of a firm.
Creating and Maintaining a Cap Table
You can view a cap table alongside the shareholders’ equity portion of the balance sheet, which also details the equity capital structuring of a firm. The table shows each investor’s equity capital stake, calculated by multiplying the share price by the number of shares owned.
Typically, the names of security owners are on the y-axis, and types of securities on the x-axis, with all holdings of each investor in a single row. You can list investors in different ways depending on your audience—maybe founders first, then executives and key employees with equity stakes, followed by angel investors, venture capital firms, and others involved in the business plan. Or, list them in descending order by ownership, with the largest holders at the top.
Special Considerations
Companies evolve constantly, so you must update their capitalization tables continuously. Startups run several funding rounds to support capital needs and issue stock options to attract talent—all these actions change the cap table. Terminating options when an employee leaves, letting options expire, having an investor exercise vested options, or an investor redeeming, transferring, or selling shares can also alter it.
Why Do Startups Need Cap Tables?
Startup companies usually have a small number of equity owners, like founders, their friends and family, and angel investors. As the company grows and raises capital from sources like venture capitalists, and eventually goes public via an IPO, keeping track of who owns what stake is crucial. You'll update the cap table after each funding round, showing how ownership gets diluted and spread across new owners.
What Information Does the Cap Table Keep Track Of?
The cap table tracks stock ownership, convertible securities, warrants and options, and stock compensation grants. This gives you a fully diluted picture of equity ownership. It shows who owns how many shares or rights, the current market value, and the proportion of ownership as an overall percentage.
Are Cap Tables Public Information?
There are no U.S. regulations requiring private companies to disclose their cap tables. Startups might limit visibility and only share them with serious potential investors. When a company goes public, however, a list of insiders and institutional shareholders becomes available.
The Bottom Line
A capitalization or cap table is a spreadsheet or table that shows a company’s equity capitalization. It’s an intricate breakdown of shareholders’ equity, used privately by private companies to provide information on investors and market value.
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