It lists all your company\u2019s securities such as stock, options, and warrants, the amount investors paid for them, and the percentage of ownership in the company of each investor. <\/p>\n\n\n\n
Cap tables are especially important for startups to keep an accurate record of ownership. <\/p>\n\n\n\n
\u201cCap tales are the norms for venture-backed startups. The ownership structure may be different in other corporations. It\u2019s not all one size fits all but, generally speaking, the ownership and the structure and incentives are essential when you\u2019re building a venture-backed startup. \u201c, Misaskieicz noted. <\/p>\n\n\n\n
He goes on to say \u201cIf you don\u2019t maintain the incentives in the cap table for the continued development and growth<\/a> of your company, then your company is potentially uninvestable so that\u2019s an important part of this.\u201d<\/p>\n\n\n\n Cap tables not only record the existing ownership of your company. It also serves as the basis for projecting the future ownership of the company. <\/p>\n\n\n\n <\/p>\n\n\n\n When you\u2019re discussing cap tables in startups, a good place to start is thinking about it as a ledger of all the shares in your company. <\/p>\n\n\n\n This includes debt that will convert to shares in the future which is typically done when stocks are promised to employees on a vesting schedule. If the employee continues to work for the company, it is part of their compensation structure that gives them the option to purchase shares in the future. In that sense, your cap table is also telling you the incentive structure for current employees. <\/p>\n\n\n\n Cap tables include the various types of shares found in a startup including:<\/p>\n\n\n\n A well-organized and up-to-date cap table will help you:<\/p>\n\n\n\n Your cap table is more than a spreadsheet filled with numbers. It tells your company\u2019s story. When making future decisions about hiring new employees, securing new financing, or even an exit strategy, your cap table is going to tell investors what your future looks like. <\/p>\n\n\n\n <\/p>\n\n\n\n There\u2019s no standard way to build a cap table. Your company\u2019s individual will share what your cap table looks like. Variables that are typically found in cap tables include:<\/p>\n\n\n\n Here is an example below of what a real cap looks like at formation:<\/p>\n\n\n\n Shareholder<\/strong> # of Shares<\/strong> % Ownership<\/strong><\/p>\n\n\n\n Founder 1 2,666,666 26.6%<\/p>\n\n\n\n Founder 2 2,666,666 26.6%<\/p>\n\n\n\n Founder 3 2,666,666 26.6%<\/p>\n\n\n\n Employees\/Advisors 2,000,000 20%<\/p>\n\n\n\n Total 10,000,000 100%<\/p>\n\n\n\n An option pool between 10-20% is typically preferred by investors from the inception. The standard for several shares is 10,000,000. The price per share at formation is intentionally low to enable founders to purchase their shares cheaply ($.00001 x $10,000,000 = $100).<\/p>\n\n\n\n Without a standard format that\u2019s used for cap tables, there is a multitude of ways to build one. There are three options you can take when building a cap table: Build from scratch, use a cap table template, and use cap table software from the start. <\/p>\n\n\n\n <\/p>\n\n\n\n When building a cap table from scratch, you\u2019re opening up a spreadsheet program like Excel and filling it out. This option gives you the most control over the details. It\u2019s also the most cost-effective solution in the beginning. <\/p>\n\n\n\n As a long-term solution, building a cap table from scratch isn\u2019t the best option. You will likely have to move to use a cap table software later on. That means you\u2019ll have to build it from scratch. <\/p>\n\n\n\n Pros<\/strong><\/p>\n\n\n\n Cons<\/strong><\/p>\n\n\n\n <\/p>\n\n\n\n Using a cap table template might make the most sense if you\u2019re starting and don\u2019t want to try to build one from scratch on Excel. You\u2019re not paying for software when using a template either. Keep in mind that using a cap table template will be limiting in the long term. For example, if you are frequently issuing options, and raising several rounds of funding, the template will not work well.<\/p>\n\n\n\n Pros<\/strong><\/p>\n\n\n\n Cons<\/strong><\/p>\n\n\n\n Cap table software can easily scale and keep updated as you issue options, have new 409A valuations, and offer liquidity. Of course, with software, there comes a cost.<\/p>\n\n\n\n Pros<\/strong><\/p>\n\n\n\n Cons<\/strong><\/p>\n\n\n\n <\/p>\n\n\n\n As previously mentioned, 10,000,000 is the standard number of shares that are typically issued at formation. This keeps the price per share low so founders can buy up their shares. <\/p>\n\n\n\n \u201cYou can\u2019t just give yourself the shares for 0 because this could mess up your franchise tax calculation if you had what\u2019s called Zero par value shares just as a footnote. It\u2019s better to pay something than not because it can mess up your corporate taxes for the life of the company if you ever issue any zero par value shares for a Delaware corporation at least\u201d, Miaskiewicz explained. <\/p>\n\n\n\n Founders divide up their shares and also set aside an employee stock ownership pool. The company also brings on some advisors. These advisors are given shares at par value at the same price as the founders. <\/p>\n\n\n\n These advisors will later introduce the company to angel investors. After these investors make their first investment, shares can no longer be sold or given share grants to employees at par value. From this point on, the fair market value of your common shares is updated based on a board motion. <\/p>\n\n\n\n Miaskiewicz explains how what happens \u201cIf you have lawyers, they won\u2019t tell you what price to set to avoid liability. But the basic back-of-the-envelope napkin math is that at this early stage you figure out what the price per share would be if you\u2019re safely converted so you had to save for a 10 million valuation cap.\u201d<\/p>\n\n\n\n \u201cThanks to the Enron scandal on the law that created the 409 evaluation requirement, you\u2019re on the hook as a founder for criminal and financial penalties if you sell shares for below fair market value.\u201d For this reason, companies can\u2019t continue to give shares to employees at the par value or price per share the founders who received them for. <\/p>\n\n\n\n For advisory shares, these are not awarded in single digital percentages. Advisory shares are typically given for roughly 10 basis points. Best practices for offering equity for advisors include:<\/p>\n\n\n\n When determining how much equity should be given to an early employee, depends on the level of risk<\/a> they are taking by joining the company and how important they are to get your company off the ground. Here is some guidance on the percentage of the equity to give employees, depending on the stage of the startup:<\/p>\n\n\n\n Stage Senior Engineer Design Lead Head of Sales 1st Generalist <\/strong><\/p>\n\n\n\n \/Marketing \/Chief of Staff<\/strong><\/p>\n\n\n\n Formation <\/strong>1%-4% 1%-4% 1%-4% .5%-2%<\/p>\n\n\n\n Seed <\/strong>.025%-1% .025%-1% .5%-2% .25%-1%<\/p>\n\n\n\n Series A <\/strong>.0125%-.5% .0125%-.5% .25%-1% .023%-.5%<\/p>\n\n\n\n Generally speaking, an employee who\u2019s part of your founding team should receive at least one percent of the equity. <\/p>\n\n\n\n A founder\u2019s ownership changes over time. The general norms are that you still retain majority ownership and voting rights from seed to Series A. In the ideal scenario, you\u2019ve given up roughly 40% of the company between the two stages. <\/p>\n\n\n\n A clean cap table depicts a company where everyone is pulling their weight and the founders haven\u2019t sold off too much of the company. A poorly built, dirty cap table can arise several problems including:<\/p>\n\n\n\n These types of problems have long-lasting effects on your company\u2019s future. Building a clean cap table matters because it:<\/p>\n\n\n\nHow to think about Building a Cap table and Equity in a Startup<\/h2>\n\n\n\n
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![\"How](\"https:\/\/maccelerator.la\/wp-content\/uploads\/2022\/06\/cap-table-spreadsheet-1024x626.jpg\" "\\"\\"")
<\/figure>\n\n\n\nHow to Build a Cap Table<\/h2>\n\n\n\n
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Building a Cap Table from Scratch<\/h2>\n\n\n\n
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Use a Template to Build a Cap Table<\/h2>\n\n\n\n
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![\"Use](\"https:\/\/maccelerator.la\/wp-content\/uploads\/2022\/06\/cap-table-template-1024x678.jpg\" "\\"\\"")
<\/figure>\n\n\n\nUse Software for Cap Table Management<\/h2>\n\n\n\n
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Important Considerations about Equity in a Cap table<\/h2>\n\n\n\n
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![\"Important](\"https:\/\/maccelerator.la\/wp-content\/uploads\/2022\/06\/capitalization-table-1024x729.jpg\" "\\"\\"")
<\/figure>\n\n\n\nProblems from a Poorly Built Cap Table<\/h2>\n\n\n\n
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