Starting a new company is exciting. New investments are what keep your company growing. Taking up a new venture is not a light decision, and it equally needs great planning to make sure that it runs smoothly and successfully. You might have several questions about what you are supposed to do or what comes first then what follows under cap table management.
At first, you need to get funds from investors, as you are already aware. A company will only operate effectively in the presence of enough funds to cater for everything that needs to be done. In addition to this, it is also essential for you to organize the ownership of the company and draw up the capitalization table or the cap table of your company. The cap table usually consists of a summary of all details concerning the investors and founders’ percentages of ownership in the corporation, the equity dilution and finally the value of the equity of each investment ever carried out.
Introduction to the Cap Table
A cap table is an essential thing for any entrepreneur. The cap table does not just store the information and details of every shareholder but does more than that. It is also not just a representation of every transaction of the company as some people may be led to believe.
Cap table management is usually made of various legal documents in addition to legal transactions. The cap table contains transfers, exercises of options, sales, and conversions of debt to equity, stock issuances, and cancellations
The information that can be drawn from the cap table is therefore endless. It is not wise to dismiss the idea of a cap table as just a spreadsheet containing information about various transactions in the business.
A cap table management is vital for various reasons. The first one is so that the company remains organized. There are so many things going on in a company that needs to be monitored. The various transactions and operations in the business can be kept in a neat and logical order through a cap table management. The cap table management includes procedures and actions such as recording transaction, signing legal documents, drafting of legal documents, communicating with shareholders and complying with regulations.
As a company that is growing, it is not a new concept for you to experience complications. This is because a growing company develops a complex capitalization structure. Investors are beneficial for your company to experience growth. Great investors combined with great employees will push your company to prosperity. Some employee even offers a piece of equity in the company.
The following are more reasons that will convince you that you need cap table software.
To raise Money on Better Terms
As mentioned above, investments are a crucial part of the growth of a company. You will need to take up different kinds of investments at different times. Your ownership and that of shareholders is impacted positively this way. A properly managed cap table enables you to carry out better negotiations where you will receive better terms. The cap table should therefore, be always up to date and with high levels of accuracy maintained.
It is essential to have a functioning and accurate cap table because, during negotiations, investors usually ask to see the cap table. It is advisable to have an existing cap table and not just that, ensure that it is organized. Without a cap table, you will experience difficulties raising money for your company. Having a detailed, accurate and organized cap table, on the other hand, increases your chances of getting a perfect deal.
You should set your cap table up right from the beginning so that you keep updating it as now transactions happen. Do not rush into it when you want to take up a new investment; just start early. When you begin soon enough, you will avoid making mistakes because of rushing through it, which may result in dire consequences like losing your ownership of the company.
For all operations in the company to go on well, always keep track of the vested shares. An option holder can sometimes leave the company before time, which means that their unvested options are given back to the company.
Apart from these, you still need to be aware of restricted stock the various purchases in the company, transfers and early exercises. Keep records of all these things because without keeping track you will find it very difficult to manage the caps table. Offering employees with equity compensation usually complicates the process of managing the caps table.
Hiring Key Employees
Are you looking forward to hiring and retain the best employees for your corporation for Sales Lead? Equity compensation is a great incentive if this is your primary goal. It is important therefore for you to find ways of creating and coming up with an excellent compensation package. Have all the important information at hand; for example, executives will want to know the pay they will receive at different exit values if the company is acquired. Your cap table should therefore, be clear and updated at all times.