What is a 'Capitalization Table'
A capitalization table is a spreadsheet or table, typically for a startup or early stage venture, that shows capitalization, or ownership stakes, in a company, including equity shares, preferred shares and options, and the various prices paid by stakeholders for these securities. The table uses these details to show ownership stakes on a fully diluted basis, thereby enabling the company's overall capital structure to be ascertained at a glance. Founders are usually listed first, followed by executives and key employees with equity stakes, then investors, such as angel investors and venture capital firms, and others who are involved in the business plan.
BREAKING DOWN 'Capitalization Table'A basic capitalization table lists who owns stock, warrants, options or other investments in a startup. A more complex table may also list potential new funding sources, mergers and acquisitions, public offerings, or other hypothetical transactions. Every line should add value to the business and make it more attractive to employees, investors and partners.
Creating a Capitalization Table
A capitalization table should be designed in a simple, organized manner that answers who owns which securities and which securities are outstanding. For this reason, a table for a chief executive officer (CEO) may vary from that of a chief financial officer (CFO). In most cases, the names of the security owners should be listed on the Y axis and the types of securities should be listed on the X axis. In addition, all holdings of each investor should be in one row. No other information or notes should be on the table.
Updating a Capitalization Table
Because a startup is constantly evolving, its capitalization table must be continuously updated as well. For example, selling new shares of an existing security, issuing shares of a new security, increasing the option pool or granting options to an employee all change the capitalization table. Likewise, terminating options when an employee leaves the business, letting options expire, having an investor exercise vested options, or having an investor redeem, transfer or sell shares are also instances that alter the table. Because every decision the entrepreneur makes impacts capitalization, an accurate capitalization table is necessary to make informed decisions based on the most current information. For example, when considering a new source of funding, the entrepreneur must take into account various pre-money valuations, round sizes and option pool targets, all of which are listed on the capitalization table.
Example of a Capitalization Table
In February 2016, Amedica Corporation, which creates and sells silicon nitride ceramic biomaterial for spine, hip, knee, dental and other applications, regained compliance with the NASDAQ’s minimum bid price requirement. The company also provided financial results, showing substantial growth in improving its capitalization table, capitalization and operational structure. The company expected a positive change in fourth quarter sales for 2015, finishing above its stated goal.