Your capitalization table (cap table for short) is a summary of who owns your company. It is an up to date record of shareholders.

1. All You Need To Know About Cap Table
A cap table, also known as a capitalization table and, well to be honest, is nothing
but a fancy spreadsheet. A Cap table contains information about who owns those
shares or what prices the investors have paid for them.
Therefore, in other words, it can be said that a cap table contains the list of a
company’s potential sources of funding, acquisitions and mergers, initial public
offerings and other financial transactions. The Cap table tracks the individual
shareholder’s equity ownership.
Why do I need a cap table?
A cap table shows you who in your company owns what. Cap table empowers a
company to make the right decisions on the basis of its capitalization. How does it
do that? – By illustrating the company’s capitalization. This spreadsheet includes
all the security holders and shareholders of the company. And it ensures that the
share count of the company is equal to the sum of shares held by all the investors,
founders, managers, employees, and paid advisors.

2. How to read a cap table?
We can easily learn how to read a cap table from the above example. The cap
table includes price-per-share, pre and post-money valuation, shareholders, the
amount they paid for shares, and the ownership percentage they get.
Now, let’s understand how to read each of these elements.
1. Pre-money valuation is the amount of money that the company was valued at
prior to investment.
2. Post-money valuation is the amount that it will be worth subsequently. So, Post-
Money Valuation = Pre-Money Valuation + Total Investment Amount. Here it is
£3384700.00 + £634631.25 + £211543.75 = £4230875.00
3. The shareholder column contains all the names of shareholders that the company
has. As the business grows, this list usually also grows in length.
4. The price-per-share is calculated by taking the pre-money valuation and dividing it
by the number of pre-money shares. So here it goes like this:
£3384700.00/6769400.00 = £0.42

3. 5. Post-Money Shares of investors are calculated by taking Post Money Valuation
and dividing it with Price-Per-Share. So, Investor A’s shares amount to
£634631.25/0.42 = 1269262.50. Investor B’s shares amount to £211543.75/0.42 =
423087.50.
6. Investor percent ownership is calculated by taking the investor shares calculated
above and dividing them by the post-money shares. So, Investor A’s percent
ownership is 1,500,000/10,000,000 = 15% and Investor B’s percent ownership is
500,000/10,000,000 = 5%
How are cap tables used?
Cap tables are important in the case of raising funds. Investors are interested to
find out your company ownership structure. They can find out how the previous
financing of your company was achieved. Prospective investors want to see your
cap table to know their liquidity rank. It helps them to understand the history
(and growth potential) of the company.
A well-organized cap table is also used to understand the company’s evolution
and derive historical insights. This, in turn, helps in negotiating the present
business valuation.
How to make a cap table?
The most common form of cap tables is spreadsheets. Usually, a cap table should
be created right at the beginning stage of a business. A clearly organized and
simple cap table shows who owns what shares along with what the outstanding
shares are. So, the spreadsheet must include a list of the names of the security
holders or investors in a column.
Each of these columns should show the types of securities owned by that entity or
person.
Apart from that, a cap table or spreadsheet must also include rows on authorized
shares, outstanding shares, shared reserved for stock option plans, and unissued
shares.

4. Types of Cap Table
Now, in order to make a cap table, there are a number of methods. You need to
choose a method that suits your company’s present phase and its ownership
structure.
Excel-based cap tables
Excel-based cap tables are the traditional way to keep track of a company’s shares
issued to founders, investors, and/ or other security holders. However, excel
based cap tables are becoming outdated and old-fashioned. Currently, there are
more efficient and effective ways to manage a cap table.
Cap table templates
Cap table templates are a great way to create cap tables for startup companies.
These templates are easy to use and comprehensive for first-time users. It
eliminates the need to build your sheet from scratch.
Cap table software
Using cap table software to create and manage your company’s cap table saves a
lot of time, money, and effort. If you can integrate a cap table software at the
initial stages of your company’s life cycle, then the overall job becomes much
easier throughout the process.
Equity management platform
Equity management platforms are great if your company is old enough and raising
more money. More so, if you are hiring employees. It does not require you to
manually update your cap table every time. Rather, it gets automatically updated.
Apart from that, equity management platforms can help you to automatically
remain compliant with the necessary rules and regulations such as Rule 144 and
701 that were enforced by US Securities.
How do I manage a cap table?
There are two main ways to manage your company’s cap table. Let’s look at both
of them below.

5. Self-manage
The most obvious way to manage your startup’s cap table is to handle it yourself.
In order to do that, there are several solutions (discussed above). You will find
many software solutions available for this purpose. This software helps you
manage equity, streamline stock issuing, integrating records, and many more. This
software is pretty transparent and allows easy online access to stakeholders.
However, there are certain risks to self-managing your cap table. Some of the
common risks of self-managing cap table are:
 Unintended tax consequences
 Lawsuits
 Miscalculated valuation
 Failure to attract potential investors
 Loss of acquisition
 Lose fundraising
 Failure to comply with laws, statues and regulations
Outsource
You can outsource cap table management to a legal team. A legal team essentially
ensures the accuracy, relevance, and consistency of the cap table. Not only that
but this way you can make sure that all the compliance needs are addressed
properly. The team will take care of your fundraising possibilities and maintain a
strong financial structure for your company. It will help you attract potential
investors easily.
Conclusion
Managing a cap table is all about accounting and spreadsheets. But still, it is not
only time consuming but also quite complicated and tedious. Nevertheless, it is
highly crucial for your company’s growth. So, you need the right solution. You
need such a solution that can provide up to date and accurate equity data for all
the security holders or shareholders at any given point of time.

6. In addition to that, the solution should also address all the mandatory compliance
rules. A responsibly managed cap table can eliminate a lot of risks for your
company’s future. On the other hand, an improperly organized cap table can
create a lot of potential risks for your company. The key is to make sure that your
company’s cap table is an asset, rather than a liability.