TL;DR
A cap table is a comprehensive document that outlines the ownership stakes in a company. It details who owns what percentage of the company, including founders, investors, employees with stock options, and other stakeholders.
The cap table tracks equity ownership, the various classes of shares, and the dilution of ownership over time as new investments are made and shares are issued.
Key Components of a Cap Table
A typical cap table includes the following elements:
- List of Shareholders: This section lists all individuals and entities that hold equity in the company, including founders, investors, employees, and advisors.
- Classes of Shares: Companies may issue different classes of shares, such as common shares and preferred shares, each with distinct rights and privileges.
- Number of Shares: The cap table specifies the number of shares each shareholder owns.
- Percentage Ownership: This column shows the ownership percentage each shareholder holds in the company.
- Stock Options and Warrants: Details about stock options granted to employees and other stakeholders, including the number of options, exercise price, and vesting schedule.
- Convertible Securities: Information on convertible notes or other securities that may convert into equity.
Let’s have a look at a practical example to make things more clear.
Example of a Cap Table
Let’s consider a fictional startup, Tech Innovators Ltd., to illustrate a cap table.
Initial Ownership
Shareholder | Shares | Percentage Ownership |
---|---|---|
Alice (Founder) | 500,000 | 50% |
James (Founder) | 500,000 | 50% |
After Seed Investment
Tech Innovators Ltd. raises a seed round of $1 million from a Venture Capital Fund, issuing 200,000 new shares.
Shareholder | Shares | Percentage Ownership |
---|---|---|
Alice (Founder) | 500,000 | 41.67% |
Bob (Founder) | 500,000 | 41.67% |
VCF (Investor) | 200,000 | 16.66% |
After Stock Option Pool Creation
The company decides to create a stock option pool of 150,000 shares for future employees.
Shareholder | Shares | Percentage Ownership |
---|---|---|
Alice (Founder) | 500,000 | 38.46% |
Bob (Founder) | 500,000 | 38.46% |
VC (Investor) | 200,000 | 15.38% |
Stock Option Pool | 150,000 | 11.54% |
Let’s wrap thing up with some final words.
Conclusion
A cap table is an indispensable tool for startups and investors, providing a clear and detailed view of a company’s ownership structure.
Interested in learning more VC related terms? Head over to our VC glossary!