By Fernando Berrocal

A “Capitalization Table” (also known as a "Cap Table") is a spreadsheet or table that shows all of your startup's securities and who owns them: stocks, convertible notes, warrants, and equity grants are types of securities. In general, it shows the “Equity Capitalization” for a startup. 

This is mainly a tool used by startups and early-stage businesses alike; however, all types of companies regardless of their size may use it as well if they find it useful. 

Why do you need a Cap Table? Capitalization tables are essential in this kind of business because they show who owns what percentage of your startup. Everything from how you price future fundraising rounds to who needs to sign off on important startup decisions can be influenced by this.

What does a Cap Table look like? On one side, a list of names or groups (founders, investors, common stockholders, etc.) is generally displayed. On the other hand, in the other plane is the information about what they own (what type of securities they have, how many of these they own, when they invested, what percentage of the startup they own, etc.).

How do I make one Cap Table? A cap table may be created and managed in a variety of ways depending on the life of your startup. The ideal solution for you is to determine by the stage of your startup and the ownership structure of it.

Make a Cap Table using existing “Templates”: Because ownership is usually simple and easy to track early on in the life of your startup, cap tables are usually kept in a basic spreadsheet. If you're creating a cap table for the first time, however, it's not a good way to start from scratch, try online or through software to find a template of this that’ll save you time and energy for your startup.

Make use of the free Cap Table software: The Cap tables may rapidly become more complicated, therefore using cap table software early in your startup's life cycle will be a good idea as it’ll save you time and money as your startup grows going forward.

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Use an equity management platform: An “Equity Management” platform is a way to go as you start recruiting people and raising extra cash. Instead of needing to remember to update your cap table and provide the most recent version to stakeholders, it will update itself as new 409As, issue options, offer liquidity, and other events occur. 

Stay compliant with regulations like Internal Revenue Code Section 409A, Rule 701, Rule 144, and the $100K ISO limit.

There isn't a single reliable source of information: One copy is managed by your attorney (for an hourly charge), while the other is managed by you or your CFO. There is no single source of truth if an employee joins or exercises options and you forget to send the updated cap table to the lawyer, or vice versa.

They’re expensive: It can take plenty of billable hours for your legal startup to issue option grants that comply with all IRS and SEC equity regulations. 

When it comes to maintaining funds, these may quickly add up eventually and rapidly. For reconciling multiple versions of a startup’s cap table, you may receive estimates of over $20,000 in legal fees.

What's the best way to keep my cap table updated? If you keep your cap table in a regular spreadsheet, in that case you should be cautious to use consistent names. Also, you will have to update your version if something eventually changes, and transmit the new version to relevant current and future stakeholders, such as your lawyer.

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Are you in need of capital and technical support for your startup? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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