Cap Table (Capitalization Table): Who Owns What
A capitalization table, or cap table, is a snapshot of who owns what in a company. Think of it as a detailed ownership registry, outlining each shareholder’s stake and the different types of shares they hold. It’s crucial for understanding a company’s equity structure and can be especially important when considering a secondary sale.
Why is the Cap Table important?
The cap table matters because it reveals:
- Ownership percentages: It shows how much of the company each shareholder owns. This helps determine control, voting rights, and the potential payout in an exit scenario (like an acquisition or IPO).
- Types of shares: Companies often issue different share classes (e.g., Common Stock, Preferred Stock) with varying rights and privileges. The cap table clarifies who holds which types. Learn More: Common Stock vs Preferred Stock Key Differences
- Dilution: As a company raises more funding, new shares are issued, potentially reducing the ownership percentage of existing shareholders. The cap table helps track this dilution. Learn More: Dilution Protecting Your Share of the Pie
- Value of your shares: Understanding the total number of outstanding shares, combined with the latest company valuation, helps you estimate the value of your holdings. Learn More: Understanding Private Market Valuations
What does a Cap Table look like?
A cap table typically looks like a spreadsheet. While complexity varies, here’s a simplified example:
| Shareholder | Share Class | Number of Shares | Ownership Percentage |
|---|---|---|---|
| Founders | Common Stock | 10,000,000 | 50% |
| Series A Investors | Preferred Stock | 5,000,000 | 25% |
| Series B Investors | Preferred Stock | 3,000,000 | 15% |
| Employee Stock Option Pool (ESOP) | Option | 2,000,000 | 10% |
| Total | 20,000,000 | 100% |
Key terms you’ll see on a Cap Table:
- Authorized Shares: The maximum number of shares a company can issue, as stipulated in its corporate charter.
- Issued Shares: The number of shares the company has actually distributed to shareholders.
- Outstanding Shares: The number of shares currently held by investors, including employees. This excludes treasury stock (shares repurchased by the company).
- Stock Options: Contracts giving someone the right to buy shares at a set price in the future. Learn More: Stock Options
- Warrants: Similar to options, but often issued to investors or as compensation.
How does a Cap Table change over time?
A cap table is a dynamic document, evolving with each funding round, stock option grant, or secondary transaction. It’s essential to keep it up-to-date to accurately reflect ownership. Learn More: The History of Secondary Markets
How does Earlyasset use the Cap Table?
Earlyasset leverages the cap table information (provided by the company or you) to understand your ownership and facilitate secondary transactions. This information helps us provide accurate pricing and ensures a smooth, compliant process. Learn More: Selling Your Shares with Earlyasset The Process
So here’s what we covered:
- What a cap table is and why it’s important.
- What a cap table looks like and key terms to understand.
- How a cap table changes over time.
- How Earlyasset uses the cap table.