Cap Table

Tools and Tricks

(This is part six of a 9-part series on raising Seed capital in PropTech. For the rest of the series, check here.)

Let’s start with some basics, because I had no idea what I cap table was a few years ago.

A cap table (short for “capitalization table”) is just a spreadsheet that shows who has equity in a company and at what terms. Since startups usually raise multiple rounds of financing at different periods of time when (in theory) the company has different values, there has to be a central table to track who owns what and at what terms.

Investopedia has a good overview here. Cooley’s is here. And remember VentureHacks’ great intro is here.

Cap Tables are a great way to show the following concepts in a single table —

• Founder(s) Equity
• Angel/Friends-and-Family Equity
• Angel/Friends-and-Family Terms
• Differing Classes of stock
• Valuation (both gross and price per share) over time
• Vesting — Do early employees have stock that is vesting and when?
• Unallocated equity — How you will compensate future employees beyond their salary.
• Warrants & Options— Who has the right to invest in the future? Who can get additional equity in the company without investing?
• Projected Dilution — What’s the equity worth after the upcoming round?

All of that can be shown in a single table.

Here is a generic example —

Not a real company, but really what a cap table looks like with some easy numbers.

I like this example because it’s simple, but notice that it’s missing any reference to vesting or convertible debt. This just shows two classes of shares, Common and Series Seed Preferred. Nothing here about Warrants either. That’s pretty typical for a Seed round of financing.

A few points worth noting —

1. I like the colors used to point out pre vs post money financing columns. It shows what founders and early advisors have (Common stock) vs what the Seed investors are getting (Preferred stock). It’s pretty easy to add another set of columns when you have your next round of financing.
2. Notice that the founders have some equity in LLCs. I like that move to create legal, accounting, and liability separation from them personally. That means that after this round, those founders will control 27.6% and 35.0% of the company respectively.
3. Advisors own about 5% of the company pre-financing. That’s maybe a little high, but not unusual.
4. $15M pre-money is high or low depending on where you live and your sub-niche. Probably on the higher side unless you’re in the Bay Area.
5. Notice that for $5M, investors own 25% of the company after all financing. Just like Pitchbook said they would!
6. 15% employee option pool is very common.
7. Lead investors don’t necessarily need to put in the most money. They just need to be in first to get the other dominoes to fall with their terms and diligence.
8. # of shares outstanding isn’t as relevant as most first-timers think. It seems cool to have millions of shares outstanding, but what is much more important is a realistic and healthy price per share ($2 in this case). That’s how the company will price a sale/exit.

When you break this thing down, it’s not really THAT complicated. The BLUE is common stock for the early investors, advisors, and founders. The Green is the new Seed investors. Comparing them side-by-side you can see how the shares add up and compare. Not that complicated, but you need to know how to manipulate these numbers and run hypothetical scenarios for investors.

Your attorney will manage this, but you still need to be able to work with it and talk a prospective investor through it.