How To Create A Cap Table: A Quick Guide

How to Create a Cap Table: The Ultimate Cap Table Template

So you started a company. Do you plan to…

  1. issue stocks, convertible notes, or equity grants?
  2. raise money from investors?
  3. create an employee stock option pool?
  4. all of the above?
  5. some of the above, even if you're not sure which, or when, but you want to keep options on the table just in case?

If you answered yes to any of those questions, you need a cap table.

A cap table is a seemingly simple tool that can actually get very complex, especially as a company grows. Add to that the fact that there's no standard format for cap tables, and you may find yourself wondering how to create a cap table (and do so quickly, easily, and correctly).

You've come to the right place. Read on for a guide to first-time cap table construction for entrepreneurs and startup founders — including everything you need to know to position your cap table to help your company grow to its full potential.

What Is a Cap Table?

A cap table (or capitalization table) is a document that tracks all of a company's securities, as well as who owns them and how much they're worth.

It's a living, breathing document that's likely to change very often — any time you give equity to employees via an ESOP, sell shares, bring on new investors in a funding round, or distribute equity in another way, your cap table will need to be updated.

You should also treat your cap table as a single source of truth where stakeholders can find up-to-date information about their equity, ownership percentage, the value of their ownership, and its dilution over time. Any financial information necessary to compute a shareholder's ownership should be included in your cap table.

What Should a Cap Table Show?

A cap table helps you keep track of who owns what so you can make important business decisions that are affected by that information. At its most basic, a cap table needs to show:

  • The total number of shares and securities (including common shares, preferred shares, warrants, options, convertible notes, etc.)
  • Existing shareholders's names, how many shares they own, and the prices they paid for their shares
  • Number of outstanding shares

A basic cap table with minimal equity holders might be just a spreadsheet with the names of all shareholders and a one-line description of the shares they own. But once you start adding angel investors, venture capital, employee stock option plans, and complex financial transactions to your cap table, things may not be that simple anymore.

A more complex cap table can track more details about the company's ownership and finances, including:

  • Common stock
  • Preferred stock
  • Restricted stock
  • Pre-money options
  • Post-money options, including any reserved shares for an option pool
  • ESOP information (including vested and unvested shares)
  • Authorized shares
  • Unissued shares
  • Sources of funding and amounts raised
  • Convertible debt raised
  • IPO information
  • Mergers, acquisitions, and other transactions

How Are Cap Tables Used?

Your cap table is used to help make business and financial decisions. If your cap table is kept organized and up-to-date, it should only take a quick glance to get a clear picture of the company's equity and holdings.

These are some of the most common ways companies use their cap tables and the information they contain.

Raising Capital

An up-to-date cap table will play a crucial role in any fundraising you do for your company. Potential investors will want to see a cap table so they can understand the equity position of the company before making an investment. It helps them better understand the company's valuation, how their investment will impact other investors, where they sit in the liquidity rank, and other important considerations.

Compensating Employees

It's becoming more and more common for companies (especially startups) to offer their employees equity ownership as part of their compensation package. Your cap table helps track and manage employee shares and options, terms, vesting schedules, and more.

Tax and Regulation Compliance

While your cap table isn't a legal document, it can be used to ensure that legal documents related to taxes and compliance with local regulations are correct and up to date. Accountants, lawyers, and other partners will use your cap table to do their work.

Liquidity Events

In the event of a merger, acquisition, sale, or other liquidity event, your cap table outlines how much each shareholder gets from the proceeds, and in what order. A comprehensive and up-to-date cap table can help avoid lawsuits or disagreements that can arise from cash distribution after a liquidity event.

How to Create a Cap Table: 3 Options

Now that we've covered the basics, let's talk cap table construction. When making your company's first cap table, there are three options that are most commonly used.

Option 1: Build Your Own Cap Table from Scratch

A lot of early-stage companies find that they only need a simple cap table, so an Excel sheet can do the job. This is often the cheapest way to make a cap table, but it's not necessarily the most scalable solution.

To build your own cap table, start with the names of equity holders on the Y-axis and the types of equity on the X-axis. Other financial information you include in your cap table will vary, depending on your company's equity position and what you need from your cap table.

With this method, you'll need to manually update your cap table any time your equity position changes. This includes after new financing rounds, when new employees join the option pool, when existing shareholders exit the company, or any other time that equity changes hands.

Pros

  • Simple and cheap.
  • You can customize your cap table to your exact specifications.

Cons

  • It can be difficult to collaborate on and maintain a cap table that lives in a spreadsheet.
  • As your cap table becomes more complex, it will be difficult to track and maintain manually.

Option 2: Use a Cap Table Template

The internet is full of sample cap tables and templates. There are many different options (both paid and free), which makes a template an attractive choice for those who are overwhelmed by the idea of building their own cap table from the ground up.

Creating a cap table from a template is simple. You just need to find a template that will work for your needs, download it, and start filling it in.

With the wide variety of templates that exist, it's possible to find one that fits your company's needs, whatever growth stage you're at (though it may take a little searching).

Pros

  • Simple and fast to set up — you just enter your information into pre-filled cells.
  • A wide variety of available templates makes it relatively easy to find one that suits your company's needs.

Cons

  • It still lives in a spreadsheet, which requires manual updating and can limit collaboration.
  • Your ability to customize a template may be limited, meaning the template you choose may not be scalable as your company grows and your cap table needs evolve.

Option 3: Use Cap Table Software

Many companies choose to keep their cap table in a spreadsheet — either one they build themselves or a template. It's a fast, easy option, but there's a big problem with spreadsheets: They aren't a single source of truth. A spreadsheet can't track and check your cap table data in real time. If someone makes a copy and updates it without telling anyone, it becomes impossible to keep all versions of your cap table up to date.

That's what makes cap table software such a great option, even for small and early-stage companies.

Creating a cap table using software is even easier than a spreadsheet. If you have an existing cap table in a spreadsheet, you can often import it. If you're starting from scratch, most software will help guide you through the process. Some options even have onboarding specialists to help you set up your cap table and learn how to manage it.

And cap table management is another huge benefit to using software. Building your cap table is only the first step. As you've already seen in this article, updating, maintaining, and sharing your cap table comes with ongoing challenges. By using software, you can build a cap table that updates in real time (making it the single source of truth you need), and scales with you as your company grows.

Pros

  • Easy to set up, and easier to manage, track, and keep updated than a spreadsheet.
  • All updates are reflected in real time for all users.
  • Can help save time and money when handling tax and regulatory compliance issues.

Cons

  • May cost money.

All that's left to do to create your Cap Table is choosing the right software

When comparing the pros and cons, the best choice is clear: cap table software is fast, easy, scalable, and provides a host of other benefits, including real-time updates, legal compliance, document storage, and more. The only downside is that it typically comes with a cost, which can be a challenge for a bootstrapped startup.

So when you choose your cap table management software, go with an option that provides all those benefits and an affordable freemium model that makes it accessible to companies at any stage of growth. That option is Cake.

With Cake, setting up your cap table is easy as pie. Simply upload your existing cap table or let our team help you create one from scratch. Your cloud-based cap table will handle tracking equity transactions and complex calculations while storing portfolio information, documents, and company communication in a transparent dashboard that all stakeholders (including important partners like accountants and lawyers) can access.

Cake combines accreditation, automation, and professional advice to bring equity management best practices to founders everywhere — plus it's one of the most affordable software solutions available today.

As a founder, you have enough to manage, so leave your cap table to Cake. Get started in just minutes, for free.

Looking for more info? Check out our blog for insightful startup hacks, tips, and tricks.

This blog is designed and intended to provide general information in summary form on general topics. The material may not apply to all jurisdictions. The contents do not constitute legal, financial or tax advice. The contents is not intended to be a substitute for such advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.