Posted by Assure ● Sep 15, 2021 9:55:22 AM
What is a Cap Table?
When it comes to managing and issuing securities, there is a great deal of information to consider.
Specifically, it is important for an entrepreneur or private company to know “who owns what” when it comes to ownership and securities. Remember, a security can be anything from stocks to options to equity shares to warrants or a list of other means of ownership. At its most basic level, a cap table, or capitalization table, is simply a list of these securities and who owns them.
It is pretty straightforward why a company or investor would want to take advantage of a cap table. Not only is this information crucial, a cap table presents this information in a digestible and approachable manner. This can be advantageous for making decisions that pertain to the securities, such as fundraising scenarios or making adjustments for the purpose of financial gains.
And while there are common templates that demonstrate the nature of a cap table, and the information that should be included, it is not a one-size-fits-all approach. Some companies might prefer a cap table that makes much more focused use of the details, or intend to treat their cap table as an ongoing tool for progress, rather than a list of information.
Getting Detailed with a Cap Table, Or Not
When it comes to cap table management, company preferences should be incorporated. For some companies, it is beneficial to create and maintain a complex cap table. For instance, a particular private company may wish to incorporate formulas within its cap table for the purpose of modeling out hypothetical transactions. These can range from public offerings or new financing opportunities.
Other companies may wish to simply maintain details on the holdings of each individual owner or each type of individual security. Again, this depends on the company, and what they are hoping to achieve with their cap table. Some companies, for example, might simply rely on their cap table as a summary of sorts, bucketing specific investors or stock options into categories for simple access.
However, regardless of how detailed a company wants to be when it comes to maintaining its cap table, the table should still provide a basic understanding of the company’s financial situation. Specifically, the table should demonstrate the total market value of the company and its components. And to make sure this is the case, in any instance, there is an underlying rule that all companies should adhere to—Keep the cap table up to date at all times.
Keeping a Cap Table Accurate
To make sound financial decisions, private companies or entrepreneurs need the most accurate and up-to-date information. This means not only having access to timely reports on the status of current financials, but also being able to run scenarios based on upcoming or potential financial decisions. Without a cap table, or more to the point, without a cap table that makes use of the most accurate and detailed information, it can be more risky for an investor to weigh their present and future options.
Keeping a table accurate doesn’t mean it shouldn’t be simple. On the contrary, a cap table should absolutely be simple in its structure and design. After all, the information it contains should be accessible and digestible, not difficult to decipher. The information should be available at any time it is needed or to be relied upon, whatever the situation may be.
Again, not a single template will work for all entrepreneurs or companies, and even more so, a cap table within a single company might need to be presented differently for the CEO as compared to the CFO. Even so, the information should be simple and easy to access. One tip to maintain this simple but detailed approach is consistency. Consistency can go a long way in keeping a cap table healthy and functional. While it might seem like an obvious notion, simplicity and consistency will enable better functionality from a cap table.
An SPV Can Simplify Your Cap Table
There is no question that a cap table can become very involved, and if a company or entrepreneur isn’t maintaining the document as well as they should, then it can even become messy over time. However, a Special Purpose Vehicle, or SPV, can simplify a company’s cap table.
Think of it this way: Every time the company acquires a new investor, new information needs to be added to the cap table. And as previously discussed, this information isn’t limited to the name of the investor alone, rather, will include details of the terms of the investment. If the company is keeping a complex cap table, then this single investor might contribute a great deal of new information to the cap table. And the more investors that go into the table, the longer and more involved the table becomes.
By using an SPV, on the other hand, a company or entrepreneur would have one additional name to add to their cap table. In this instance, the owner of the SPV will distribute the necessary information, as opposed to every individual investor. This can simplify things dramatically, and provide a company update that is simpler to digest.
Begin your SPV today, and discover the additional benefits it can provide for you.