The 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 types of shares they hold. It’s crucial for understanding the distribution of equity and control within a company, especially for private companies.
Why is the Cap Table Important?
- Understanding Ownership: The cap table shows the percentage of the company each shareholder owns. This is essential for founders, employees, and investors to track their investment and potential returns.
- Tracking Dilution: As a company raises more funding, new shares are issued, diluting existing shareholders’ ownership. The cap table helps visualize how these funding rounds impact everyone’s stake. See also: [Dilution: Protecting Your Share of the Pie]
- Managing Equity Incentives: Companies use equity (stock options, RSUs) to attract and retain talent. The cap table helps manage these equity incentives and their impact on overall ownership. See also: [Stock Options], [RSUs: Restricted Stock Units How They Work]](/RSUs-Restricted-Stock-Units-How-They-Work)
- Negotiating Investments: Investors use the cap table to understand the current ownership structure before investing. It helps them assess potential returns and negotiate their equity stake.
- Planning for Liquidity Events: During an IPO or acquisition, the cap table is critical for determining how proceeds are distributed among shareholders. See also: [The IPO (Initial Public Offering): What Happens Next]
What’s on a Cap Table?
A cap table typically includes:
- Shareholder Name: The name of each investor, founder, or employee holding shares.
- Share Class: The type of shares held (e.g., common stock, preferred stock). Different share classes have different rights and privileges. See also: [Common Stock vs Preferred Stock: Key Differences]
- Number of Shares: The total number of shares held by each shareholder.
- Percentage Ownership: The percentage of the company owned by each shareholder, based on their number of shares.
- Share Price (if applicable): The price per share paid by investors in different funding rounds.
- Pre-Money Valuation: The value of the company before a funding round.
- Post-Money Valuation: The value of the company after a funding round.
- Option Pool: Shares reserved for future employee equity grants.
Example Cap Table (Simplified)
| Shareholder | Share Class | Number of Shares | Percentage Ownership |
|---|---|---|---|
| Founder A | Common | 1,000,000 | 50% |
| Founder B | Common | 500,000 | 25% |
| Seed Investor | Preferred | 250,000 | 12.5% |
| Option Pool | Common | 250,000 | 12.5% |
| Total | 2,000,000 | 100% |
(Note: This is a simplified example. Real cap tables can be much more complex.)
Common Questions About Cap Tables:
- How often is the cap table updated? Ideally, after every significant equity transaction (funding round, option grant, secondary sale).
- Who manages the cap table? Typically, the company’s CFO, legal counsel, or a designated administrator. See also: [SecondaryOS: How Companies Manage Secondary Sales]
- Can I see my company’s cap table? Access to the cap table is usually restricted to company management and investors. However, some companies choose to share a simplified version with employees.
So here’s what we covered:
- What a cap table is and why it matters
- The key components of a cap table
- A simplified example cap table
- Common questions about cap tables