What is a Cap Table? A Founder’s Guide to Equity Ownership

If you’re a founder you’ll likely be aware that a cap table, or capitalisation table, is an essential piece of kit.

But what is a cap table and why is having a properly maintained one so important for startups?

In short it’s a tool for tracking the ownership of a company: the different stakeholders, what their holdings are and what percentage these make up. It should also list all securities such as shares, options, convertible/SAFE notes and warrants.

A Cap Table is the DNA of any startup and is often one of the first documents created, serving as a foundation for informed decision-making by both founders and investors.

What does a cap table look like?

There’s no fixed format but a cap table will typically include:

• Complete list of stakeholders: Founders, investors, etc. Anyone who has been granted equity in the company.
• Ownership details: Info on the type of equity, total ownership and ownership percentage for each stakeholder.
• Unissued shares: Shares that are allocated but not yet issued.
• Outstanding shares: Shares that are issued and actively held by shareholders.
• Share option pool: A collection of stocks reserved for employees.

How is a cap table created?

In their early days many companies choose to track this information on a spreadsheet or some other manual process. As a company grows, with the number of stakeholders and transactions increasing, manually keeping these details up-to-date and accurate can prove challenging, which is why companies will often look to find a dedicated service provider to handle their cap table management needs, such as J.P. Morgan Workplace Solutions.

J.P. Morgan Workplace Solutions’ software is free to use for up to 40 stakeholders so is well suited to early stage startups, and is designed to meet their needs as they grow through funding rounds, raises and on to IPO (Initial Public Offering) and beyond.

What is a cap table used for?

Understanding ownership: Having a clear picture of equity ownership can help founders avoid conflicts over equity allocation. Transparency and clarity about who owns what is often crucial for maintaining harmony among co-founders.
Tracking value over time: Keeping a cap table current allows founders and investors to see how the company’s value is changing, which aids strategic planning and decision-making.
Raising funds and attracting investors: An accurate cap table helps instil confidence. It provides a snapshot of the company’s financial health, and using tools such as round modelling to forecast the impact of funding rounds can help founders protect against dilution.
Recruiting employees: Startups often don’t have the financial resources to compete with more established companies when it comes to pay, so offering employees a stake in the future performance via stock options is often a way to make entice top recruits. This is all tracked via the cap table.

Get started

A cap table is an indispensable tool for any startup, providing a snapshot of ownership and aiding in financial decision making. Having a well maintained cap table can assist founders with understanding and navigating the complexities of equity ownership, as they work to make sure they are well-positioned for growth and investment.

Our partner, J.P. Morgan Workplace Solutions, provides the tools to manage equity, from inception through funding rounds and onwards. Their cloud-based solution is free up to 40 stakeholders and is designed to track investors and model future funding rounds, freeing founders to concentrate on growing the business.

Learn more and get started here.

DISCLAIMER

J.P. Morgan Workplace Solutions is a brand name for equity compensation administration business conducted by Global Shares and other financial products and services offered through affiliates of JPMorgan Chase & Co. Global Shares is a trading name of the legal entities described hereafter including Global Shares Ireland Limited (“Global Shares Ireland”), a company registered in Ireland, registration number 412396 with its registered office at Unit 2, Building D, West Cork Technology Park, Clonakilty, Co, Cork, Ireland which provides share plan administration services and software. Global Shares Inc. (“Global Shares US”) is incorporated in Delaware and provides share plan administration services and software to certain U.S. Companies.

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Global Shares Trustees Ireland Limited, Global Shares Trustees (UK) Limited, and Global Shares Trustees Company Limited (collectively, the “Trust Companies”), are Irish and UK trust companies that provide limited trust services for corporate share plans.

Global Shares Execution Services Limited (“GSESL”) is licensed to conduct investment services business under the Investment Services Act as authorized by the Malta Financial Services Authority (“the MFSA”) pursuant to license number GSES-IF-14206. The Company offers receipt and transmission of orders and nominee services under its provision of business. The registered address is at 171, Old Bakery Street, Valletta, VLT1455, Malta.

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