What Is a Capitalization Table?
A capitalization table, also known as a cap table, is a spreadsheet or table that shows the equity capitalization for a company. A capitalization table is most commonly utilized for startups and early-stage businesses but all types of companies may use it as well. In general, the capitalization table is an intricate breakdown of a company’s shareholders’ equity.
Cap tables often include all of a company’s equity ownership capital, such as common equity shares, preferred equity shares, warrants, and convertible equity.
- A capitalization table is a table showing the equity ownership capitalization for a company.
- The capitalization table is essential for financial decisions involving equity ownership, market capitalization, and market value.
- Capitalization tables help private companies maintain the calculation of their market value. In the private market, they are also important for shareholder reporting and new capital issuance marketing.
Understanding a Capitalization Table
A basic capitalization table lists out each type of equity ownership capital, the individual investors, and the share prices. A more complex table may also include details on potential new funding sources, mergers and acquisitions, public offerings, or other hypothetical transactions.
Capitalization tables are typically used privately by private companies to provide information on a company’s investors and market value. Below is one example of a capitalization table.
Overall, a capitalization table shows the total market value of a company and its components. As a key point of reference for business managers, the capitalization table is considered in every financial decision that has an impact on market capitalization and the company’s market value. As such, it is important for the capitalization table to be accurate, customized to the business needs, and regularly maintained for decision making based on the most current information.
A capitalization table is a simple, organized document that displays the total ownership capitalization of a firm.
Creating and Maintaining a Capitalization Table
Comparatively, it can be viewed in conjunction with the shareholders’ equity portion of the balance sheet, which also details the equity capital structuring of a firm.
The capitalization table shows each investors’ equity capital stake in the business, which is calculated by multiplying the share price by the number of shares owned. In most cases, the names of the security owners will be listed on the Y-axis and the types of securities on the X-axis. In addition, all holdings of each investor should be in a single row.
The listing of investors can be done in a few different ways and may depend on the targeted audience. Some capitalization tables may list investors by founders first, followed by executives and key employees with equity stakes, then other investors, such as angel investors, venture capital firms, and others who are involved in the business plan. Alternatively, a capitalization table may choose to list investors in descending order by ownership, showing the largest holders at the top.
Companies are constantly evolving, and so their capitalization tables must be continuously updated as well. For example, startups run several funding rounds to support capital needs. They also issue stock options to attract talent. All of these actions 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.
Why Do Startups Need Cap Tables?
Startup companies generally have only a small number of equity owners. These often include the founders, friends and family of the founders, and angel investors. Keeping track of who owns what stake in the new company is important as it grows and raises capital from other sources such as venture capitalists, and ultimately to the public via an IPO. The cap table will be updated after each subsequent funding round, showing how ownership becomes diluted and spread across new owners as it grows.
What Information Does the Cap Table Keep Track of?
The cap table will keep track of stock ownership as well as convertible securities, warrants and options, and stock compensation grants. This allows for a fully-diluted picture of equity ownership. The cap table will show who owns how many shares (or rights), the current market value, and the proportion of the ownership as an overall percentage,
Are Cap Tables Public Information?
There are no U.S. regulations mandating that private companies disclose their cap tables. Startups may want to limit the visibility of their cap tables, and only make them available to serious inquiries from potential investors. Once a company goes public, however, a list of insiders and institutional shareholders is made available.