What is a Cap Table?

A capitalization table (or “cap table”) is a spreadsheet that, generally speaking, lists all of a company’s securities (stock, warrants, options, etc.) and who owns them. Put another way, a cap sheet is a ledger that lists the investors in a company, along with each investor’s percentage of ownership, equity value and dilution, and other related information. Cap sheets are most commonly used in the early stages of a startup or venture, often created before any other initial company documents are created. A fully diluted cap table will show the percentage ownership in the company for each investor, assuming that all convertible notes will eventually convert to equity.  

The simplest form of a cap table lists a start-up's shareholders and how many shares each shareholder owns. Since ownership of shares will change as investors and employees come and go, a cap table needs to include all information showing what happens regarding to the company’s shares as they are bought, sold or returned.

How to Make a Cap Table

Most people use a spreadsheet to create a cap table. When you first start your company, you will likely be able to create your cap table yourself. As the company grows and transactions become more complicated, however, you should seriously consider consulting with your business’s attorney to ensure the accuracy and effectiveness of your company’s cap table.

Here are some useful tips for creating your first cap table:

  • The easiest way to start your own cap table is to use a sample spreadsheet.

  • Make sure the cap table template you choose is one that allows for input of all information and figures important to your particular company.

  • Insert the total number of shares you have in the first row.

  • In subsequent rows, allow for input of information for each of the following types of shares:

    • Authorized shares: The amount of shares that a company is allowed to issue.

    • Outstanding shares: The total number of shares held by shareholders.

    • Shares reserved for the stock option plan: These shares have not been issued, but are reserved in an “option pool” for future hires.

    • Unissued shares: Total number of authorized shares that have not yet been issued.

  • In a separate table, add:

    • The shareholders: The names of each individual shareholder.

    • Types of shares owned by each shareholder: Usually common stock.

    • Stock options: The number of stock options owned by individual shareholders.

    • Fully diluted shares: The number of outstanding shares if all possible sources of stock were to be exercised or converted. This information makes it is easier for stockholders to determine the value of their shares.

    • Percentage of fully diluted shares: Indicates the percentage ownership of each shareholder.

    • Option remaining pool: Indicates the number of remaining shares available to be optioned.

If done properly, all of the percentages designated in the cap table will add up to 100 percent.

As the cap table becomes more complicated with the addition of more transactions, you may need to create additional pages that are linked to the main table. Subjects for these separate pages may include: lists of shareholders for each type of stock; a vesting schedule; table of investors; table of shareholders. Other separate pages may be needed depending on your company’s unique structure and requirements.

Why is a Cap Table Important?

Your cap table will keep you up to date on how your business is doing at any given time. It allows you to keep track of all of the important factors affecting your business, including, but not limited to:

  • How much of the company you actually own.

  • The number of outstanding shares, by type.

  • The number of shares owned by stockholders.

  • The number of shares in your option pool.

  • The amount of convertible debt.

  • Changes in ownership percentages as shares of stock are converted, sold, awarded to new hires, or become vested.

Common Mistakes

Cap tables may be simple at first, but as your company grows or experiences major changes (such as a merger or the purchase another company) your cap tables will become more complicated by necessity. With complication, however, comes the possibility of mistakes. Here are a few tips for avoiding potential cap table problems:

  • Don't forget about your option pool. The contents of an option pool may lower the pre-money valuation of your company and dilute stock values. For example, if you buy a company with an $8 million pre-money valuation, you might think the stock is worth $1.33 per share. Consider, however, a situation where there is $6 million in existing shares and $2 million in the option pool. Investors add the shares in the option pool to the company’s pre-money valuation, but the shares are assessed at post-money valuation. As a result, your price per share drops to $1. This is calculated by dividing the pre-money valuation ($8 million) by the existing shares ($6 million).

  • Don't clutter up your cap table. Instead, attach additional supporting documents, such as: copies of share certificates; corporate documents; analyses of hypothetical transactions that take into account possible new funding sources, public offerings, mergers and acquisitions,etc.; stock purchase agreements; and vesting schedules.

  • If you change a figure in one table, don't forget to change it in others. For example, if you have a shareholder that exercises his vested options and leaves the company, and his unvested options convert to common stock, you will need to update your cap table to show that the shareholder exercised the option and converted the balance. You'll will also need to update the common stock portion of the spreadsheet, including the portion that indicates the shareholder’s actions.

  • Keep a vesting schedule summary since not all employees may be on the same vesting schedule. Refer to the vesting schedule summary in the cap table.

  • Be sure to include angel investors in your cap table.

  • Never treat your cap table as a static document. Your cap table is meant to be added to and amended whenever business ownership changes dictate (the buying, selling, vesting and conversion of stock, for example.)

  • Regardless of its size or complexity, it is crucial that you keep your cap table organized. An organized cap table will minimize the potential for mistakes, as well as make it easier to locate mistakes when they are made.

  • Don't lump all of your stock into one classification. Break it down into Series A, B, C, etc. Doing so will make it easier to keep track of those individuals from whom you will need to obtain consent when seeking new financing.

Frequently Asked Questions

  • How Do I Figure Post-Money Valuation?

Add your total investment amount to your company’s pre-money valuation.

  • How Do I Figure Price per Share?

Divide your company’s pre-money valuation by the total number of pre-money shares.

  • How Do I Figure Post-Money Shares?

Divide your post-money valuation by your price per share.

  • How Do I Figure Ownership?

Divide the number of investor's shares by the number of post-money shares.

  • What is the Difference Between Pre-Money Valuation and Post-Money Valuation?

Pre-money valuation refers to the value (worth) of your company prior to investment or financing. Post-money valuation refers to the value (worth) of your company, or what the value will be, after investment or financing is obtained. For example, in discussions with an investor, you determine that your company to be worth $6 million. The investor then adds $2 million in options. In this case, your post-money valuation will be $8 million.

  • What Do I Do If I Get Overwhelmed?

Creating an effective cap table, even a simple one, can be a daunting task, especially if you’ve never done it before. If you feel at all uncertain of your ability to put together a cap table on your own, it is strongly advised that you consult with an experienced business attorney. A business attorney will explain to you the necessary elements of a cap table, as well as help you create a cap table designed to fit your company’s specific needs. Remember, an effective cap table will provide you with quick access to important information on a variety of ownership issues, such as percentages of ownership, current number of option pool shares, of each type of share, names of those whose consent is required for new financing, and many, many more.