Aidi — Capitalization (CAP) Table: What it is and How to Build One

A capitalization (often called Cap) table is a spreadsheet or document that contains a detailed breakdown of the ownership structure in a startup. It highlights who owns equity in the startup and in what proportion, the convertible assets, and also how much each stakeholder owns. A capitalization table is one of the most important documents any startup should have from its early stage as this document helps founders know how much control they still have over their company, how attractive the startup is to investors, and how they can properly plan for future growth and funding rounds.

Why is a Cap Table Important for Startups?

Investments in startups can be very tricky, especially when the business is in its very early stage. At this stage, what most founders care about is how to grow the business; and as such, would be very open to receiving capital from different sources like family, friends, founders, and angels, offering them equity in return. If the equities are not properly distributed or accounted for, it can ruin your startup. So why is a cap table important for startups?

• Fundraising- During fundraising, a cap table helps potential investors see the current ownership structure of your startup and how their investments will impact it. It helps them know what percentage of your company they will own, how much equity they will receive, and the effects of dilution on existing stakeholders.
• Decision-making- For major decisions in a startup like selling the company, it is the ones with the most stake in the company that can make such decisions, and a cap table reveals who. This is why it is important that founders don’t diust\ribute equity anyhow.
• Compliance- A cap table provides a clear, auditable record of a company's equity ownership, which is essential for meeting legal and regulatory filings.

Keeping track of who owns what stake in your startup is very important as the company grows and raises capital from other sources. 

How to Build a Cap Table in 6 Steps

Building a cap table for the first time? Here’s a simple guide on how to do it:

1. Create a Spreadsheet: For starters, you can use tools like Microsoft Excel, Google Spreadsheet, or just create a table with columns on a word document. As your company grows bigger, you can upgrade to tools like Carta, Pulley, Captable.io, SeedLegals (for UK/EU startups). A spreadsheet or tabular view will help you easily track information when needed. 

2. On your spreadsheet or tabular view, create columns for:

• Stakeholder’s name: The names of everyone who owns shares (equity) in your company (including yourself and your co-founder’s)
• Type of shares: The type of shares each stakeholder owns in your company, whether common stock, private equity, venture capital, etc
• Percentage ownership
• Number of shares owned: How many units each person owns
• Price Per Share: The price each share was bought or issued with
• Total investment amount
• Date of funds issuance
• Total number of authorised shares (The total number of shares your company is legally allowed to issue)
• Total number of shares issued (The portion of shares that have already been allocated to people)
• Fully diluted shares
• Runway

Pro tip: You can also group each share holder based on who they are: family and friends, investors, funders, etc

3. Fill in the appropriate details in each column

4. Include the Option Pool: Most startups reserve a portion of equity (typically 10–20%) for employees, advisors, or consultants. This is called the option pool. Make sure to input this portion of equity in your cap table, whether its stock options or some other form of equity, even if it hasn’t been allocated yet. You can include the names of any employee entitled to this or leave it anonymous

5. Track Convertible Notes or SAFEs (Simple Agreements for Future Equity): If you’ve raised money through convertible instruments (like SAFEs or convertible notes), these don’t give immediate ownership but will convert into equity later. Ensure to list them with the amount raised, include the valuation cap and terms of conversion (discounts, etc), estimate how they will convert in your next round. When the shares convert, input the issued shares on your cap table.

6. Document Every Financing Round: When you raise funding, you must update your cap table to reflect: New investors and their shareholding, Post-money valuation, Dilution impact on existing shareholders, and Updated ownership percentages. It is also important to always show before and after comparisons (pre-raise vs post-raise).

7. Keep Your Cap Table Updated and Accurate: Your cap table is a living document and should be updated regularly when you hire or fire, after every funding round, when shares convert, or if you grant equity to advisors or employees. Don’t make any verbal equity promises that are not recorded on your cap table.

Your cap table is one of the greatest strategic assets for any startup. It doesn;t have to be complicated or too bulky. In fact, a pro tip is to keep your cap table organised always to avoid unnecessary stress when trying to update it or track information. Don’t channel all your energy into creating great pitch decks only; channel them into creating great cap tables for your startup as well.