Here is the latest edition of Finance Fridays from Brad Feld called “Introducing the Cap Table and CTO”.
Every startup needs someone to be in charge of the Cap Table. That person is typically the inside finance person, but it does not really matter who so long is it is always current. When I was General Counsel at a tech company during the 1999 bubble times, I kept the company’s Cap Table. And now as a VC, I keep the Cap Table for a few of the company’s for which I am a board member. Cap Tables can be very complex depending on the company’s financing history.
I think Brad’s post simplified a few things (a bit too much) so I will expand some here:
1. Note how the new CTO Praveena implicitly negotiated to get her 15% founders shares after creation of the stock option pool. This is significant because Jane and Dick took all the dilution from the option pool creation. Brad’s post does note this, but it deserves more attention. It demonstrates some pretty keen negotiation by Praveena.
2. Each type and series of stock (Common, Series A, Series B, etc.) should have its own tab on the Cap Table. Then there should be a separate tab that combines everything in one spot for a clear snap shot.
3. Options and warrants also each need a separate tab and they are each also reflected on the combined tab.
4. I find it useful to also track clearly on the Cap Table how much each shareholder has invested. Brad’s post shows this for Praveena, but as you get real investors, the Cap Table needs to reflect their investment dollars clearly. You will be asked all the time how much has been invested in your company – so good to have the right answer handy.
5. Your cap table is one of the most important documents for your company if you are raising money. It is all about detail and reflecting changes (like additional option grants) on a timely basis.
I have attached a basic Cap Table template here. Cap Table Template It reflects the points above and more. Let me know what questions you have.
Zach, these are great additions to the cap table post. I’m one of the guys helping with the content (http://www.feld.com/wp/archives/2011/07/finance-fridays.html). I learned from your additions, thanks. Thanks. Next week we’ll show several weeks/months of transactions and how they impact the financials. Any complex or interesting transactions you would recommend we include?
Jonathan, depending on how simple you want to get, you could start out with opening a bank account (not as easy as it should be). A convertible debt angel round would be good. And a transaction that results in revenue recognition. Also the receipt of a grant is interesting in that it counts as revenue too. Then hiring employees and contractors. All pretty normal stuff, but all impact the financials. thx.