Best Cap Table Management Software for Startups
This article explores the important role of cap table management in a business and presents a comparative study of the best cap table management software in the market.
Startup cap table management is a crucial function for every new business. Founders are in the dark without cap tables guiding their company’s equity distribution, a concept that comes into being right from the time two or more founders come together to form a company. However, managing cap tables becomes complex as the company grows. In such situations, cap table software helps manage these complexities with ease.
Cap Table Management Software
The technology of specialized cap table management software is a recent inclusion in the business world. The need and expertise required for cap table automation evolved only in the last decade. Though the journey began by exploring software dedicated to cap table management alone, this quest has now expanded into creating a full-range of equity management solutions. Let’s take a look at the function of cap table management first.
What is cap table management software?
Cap table management software is basically an automated cap table that enables complete equity management of a business. Unlike cap tables maintained manually on spreadsheets, cap table management software is hosted online on secure servers. These cannot be accessed without proper authorization. Besides, this software is designed to handle multiple cap table functions in real-time irrespective of the events that trigger equity distribution.
Why is cap table management important?
A Cap table or a capitalization table is a record of company ownership. Thus right from the incorporation of a company, startup cap table management is crucial to know the exact ownership structure involving various stakeholders primarily founders, investors, and employees. The most important role of cap table management is as follows:
- Investor negotiations – A well-organized and updated cap table is a powerful tool during funding rounds. Since the company has been monitoring all stock-related grants, vesting, and exit activities on the cap table, negotiations with investors become smoother as both parties understand the effect of incoming funds on the company’s ownership structure.
- Manage equity distribution complexities – Cap table contains details of all equity-related activities. With every funding round, or merger, or corporate restructuring, these stock-related details undergo several changes. Cap table management enables working through complex calculations in such situations that can complicate stock agreements.
- Ensure data accuracy – This is the fundamental role of startup cap table management. Multiple classes of shares are issued to diverse stakeholders in a company’s lifetime. Unless every move is documented with care, the company will land in legal disputes with stakeholders.
Thus cap table management is an important function of startup business strategies. Owing to data sensitivity and the need for accuracy, it is best to automate this process. This can be done easily by using a cap table software like Eqvista. With state-of-the-art technologies like Eqvista, startup founders don’t have to worry about cumbersome paperwork or manual errors in data management. The entire process is automated, simple to use, and accessible with a few clicks.
Benefits of Using Cap Table Software
As we see, cap table management as an operation is quite intricate. Lapses in management of this process can land a company into legal trouble with investors and other stakeholders. Most often errors in cap table management attract heavy penalties as well. Here are some of the outstanding benefits of the best cap table management software in the market:
- Streamline workflows on grants, approvals, and monitoring all forms of equity such as options, stocks, warrants, convertible notes
- Manage financing rounds, employee equity incentive plans, and options pool
- Facilitate finance modelings such as waterfall analysis and round modeling
- Create audit ready reports anytime, saving company cost on bookkeeping
- Facilitate easy 409a valuations of the company. For mergers and acquisitions, integrate with business models of external valuation firms
- Integrate multiple functions such as payroll systems, accounting records, collection and distribution of stock purchase payments, and relevant legal documents
To truly appreciate the benefits of cap table management software, it is important to understand the disadvantages of the existing process on excel sheets. Let’s take a look:
- In a growing company with multiple stakeholders with varying equity holdings and vesting periods, manual tracking, maintaining, and updating cap tables on an excel sheet is a cumbersome process and often needs expensive man-hours and the process is still prone to errors.
- Errors in cap table management in turn affect the company’s chances during investment rounds. If equity distribution is not properly tracked, it impacts business valuation, and that, in turn, affects investments.
- Cap tables on excel sheets do not accommodate scale-ups. With expanding business, complex calculations such as estimating the fair value of share-based compensation based on diverse assumptions such as volatility, discount rates, equity value, etc cannot be handled by excel sheets.
- Cap tables on excel sheets do not allow customized access to stakeholders. Besides, stakeholder communication has to be handled on a one-on-one basis, creating possibilities for lapses.
Keeping these challenges in mind, let’s take a look at how cap table management software is beneficial in actual business scenarios like:
- Mergers – During a merger, the business structures of two or more companies must find a way to co-exist as per the agreed terms. Now imagine merging multiple cap tables on excel sheets. Different cap table structures with several variables are a cumbersome task to consolidate. But if the companies are already using cap table management software, where all data is digitized, then mergers become very simple.
- Acquisitions – Most startups aspire for a profitable acquisition. For this, startup cap table management using appropriate equity management software is important. Acquisitions are sensitive as it is due to the change in leadership. One of the defining aspects in such cases is clarity about exit scenarios for existing investors and employees. Thus the acquiring company must be presented with a reliable waterfall analysis, which is best done by cap table software. This automated reporting in a couple of clicks is not possible with excel sheets.
- Change in the corporate structure – Many times, after reaching a certain milestone, a company undergoes some structural changes. For example, a company initially incorporated as C-Corp may want to reduce heavy taxes and convert the business into two LLCs. This is a classic situation where apart from changing nature of stocks, mapping shares, and vesting cycles, all shareholders have to sign off on the changes. Cap table management software comes very handy in such a situation. With digitized data and customized access to shareholders, this process can be completed with ease with almost no human error.
Common cap table mistakes
It is clear that cap tables offer a wide range of benefits. However, it is very easy to make mistakes in structuring a cap table. These strategic and pragmatic decisions regarding a cap table reside in the hands of a startup management team. If something goes wrong in planning, it sets in motion a series of catastrophes in equity management, like a domino effect. Here are some mistakes to avoid while designing a cap table for your company:
- Parting with too much equity in the early stages
- Not making vesting schedules mandatory, especially for founders
- Having a wide variety of investors owning different types of shares in the early stages of business
- Not seeking guidance/mentorship in visualizing the evolution of a business and its equity expenditure
- Not creating an options pool for employees in the early stages
- Not negotiating option pool post-money; getting talked into deciding this pre-money
- Not scaling up from excel sheets to equity management software at the right time
- Not recording the tiniest equity-related detail; moving on with hand-shake deals
- Committing to equity without paperwork
Eqvista – Leading Cap Table Management Software in the Market
Eqvista is sophisticated cap table software and the most preferred for startup cap table management. We will discuss more why Eqvista is the best compared to the existing products in the industry in the following section.
But first, we look into the defining features and benefits of Eqvista:
Features & Benefits of Eqvista
- Cloud-based Cap table management solution – Eqvista software is hosted online on secure servers. As a result, all information is updated and kept safe in real-time. Since every equity-related data is available on a unified platform, it becomes easier to create finance model worksheets and access complex reports like detailed waterfall payouts.
- Share the Cap Table with your client or partner and give them access rights – Eqvista is great for startup cap table management because it enables customized access to numerous stakeholders. Thus selective permissions can be granted to a legal team, investors, and diverse categories of shareholders including employees.
- Easy share management – Apart from sophisticated software Eqvista has a dedicated team of professionals who will efficiently help companies manage their equity needs. With Eqvista, founders not only have access to a state-of-the-art technology to issue or transfer shares but can also rely on a dedicated team of finance professionals who can guide them in the process.
- Issue electronic stocks and certificates – Eqvista cap table management software allows share issuance electronically to all stakeholders including founders and investors. Issuing and maintaining paper certificates are no longer required. Be it stock options, restricted stocks, warrants, convertible notes, SAFEs, or profit interests, all of these can be issued and managed on Eqvista platform in a couple of clicks.
- Offering personalized shareholder portals – Eqvista allows the user to grant selective access to stakeholders. Users can choose between enabling ‘view access’ or ‘complete access’. Based on the type of stakeholder (founders, employees, investors, board members, lawyers, accountants) Eqvista enables customized access.
- 409a Valuation & Reports – 409a valuations of a company are crucial for funding rounds. Eqvista is best suited for startup cap table management because all types of equity-related information required for investment rounds are readily available in real-time. Final versions of important documents, such as waterfall analysis, can be readily accessed anytime.
- Creating ESOP (Employees Stock Option Plan) supporting RSU & RSA – Employee stock option plans are integral to a startup recruitment process. Since a business typically struggles with cash flows in the initial stages, offering company equity along with a basic cash component as salary is a great way of hiring and retaining talent. With Eqvista, restricted stocks of ESOP plans can be easily issued, tracked, and managed.
- Creating, managing, and instantly applying your Vesting Plans to shareholders – Irrespective of the category of stocks, all equity grants are accompanied by vesting schedules. These vesting schedules vary from one stakeholder to another. Eqvista’s robust platform enables the application of varied vesting schedules based on the type of stocks held.
- Supporting all types of Convertible instruments as Convertible Notes, KISS, etc – Convertible instruments function differently than stock options. They work like loans that eventually convert into equity at a certain milestone. Since they do not need company valuation for grants, they form a major part of investments for startups in the early stages. Eqvista supports all types of convertible notes, thus enabling efficient startup cap table management.
- Creating, managing, and converting Stocks to Options and Warrants – With Eqvista, all equity data is available in real-time. This makes the process of creating, managing, and converting stocks to options and warrants very easy and streamlined. The user can pull out all the necessary information in a couple of clicks.
- Waterfall Analysis and Round Modeling – Waterfall analysis and round modeling are important tools used to analyze the effect of new funding rounds on the cap table in terms of share dilution and exit scenarios for stakeholders. Eqvista cap table management software offers one of the best waterfall analysis platforms which is user-friendly and provides the flexibility of trying out various options while calculating exit values. Since all data is instantly reactive, users can quickly view the effect of varied investment values on the existing equity structure and save precious time during funding rounds.
Comparing Eqvista with Other Cap Table Management Platforms
It is quite evident that Eqvista is one of the best cap table management software in the industry. However, the strengths of Eqvista can be best understood when compared to other existing products. Let’s explore.
Why choose Eqvista over Carta, Captable.io, Shareworks?
Carta, Captable.io, and Shareworks are some of the other cap table management software in the business. Each one of them fulfills all needs of comprehensive equity management software. However, they have certain drawbacks:
- Carta – Carta works on an annual subscription and is best suited for large and medium businesses. It has an easy-to-use interface and enables both first-time and seasoned entrepreneurs to manage their equity needs. However, owing to their comprehensive features, it might not be suitable for startup cap table management. Startup founders may find Carta expensive.
- Captable.io – Captable.io offers monthly subscriptions based on the funding stage of a startup. They normally cater to small and medium businesses. But Captable.io records transactions only after they take place. It does not update automatically. Also, Captable.io on its own does not offer 409a valuations. This process is outsourced. Their finance modeling plans are limited as well. Users struggle with planning for forthcoming funding rounds. However, the biggest drawback of Captable.io is the absence of streamlined communications with the board and investors.
- Shareworks – Shareworks by Morgan Stanley caters to businesses of all sizes – small, medium, and large. Their pricing is quote-based. But they are limited in functionality to run expense simulations based on multiple outputs. Overall, users without a finance background will find it difficult to operate Shareworks.
Thus we see that, though these three software offers a wide range of functionalities, each one has its own limitations. But in comparison to these three, Eqvista offers a wide spectrum of startup cap table management services that are one of a kind. Some unique features that set Eqvista apart are:
- Free signups. Multiple profiles can be created. The free plan extends to 20 shareholders beyond which premiums are charged.
- Enables direct communication between share issuer and investor
- The team of finance professionals at Eqvista not only enable equity management using the software but also helps founders in a company filing with the state’s Division of Corporations (US)
- Evista team offers support and assistance to founders in handling transactions from seed to IPO stage
- Eqvista offers the most powerful waterfall analysis and round modeling features
How to create a cap table using Eqvista
Cap table management is a complex task as it is. Startup founders should not find themselves burdened trying to understand how to manage a tool that will in turn manage a cap table! This is why Eqvista has designed a seamless experience. Take a look at how simple it is to create cap tables using Eqvista:
Eqvista – Trusted By Over 5,000+ Companies
Over the years, Eqvista has grown to become the most sought-after cap table management software. The comprehensive yet easy access nature of the platforms empowers startup founders and seasoned entrepreneurs alike to feel comfortable understanding and managing their company equity. Here is a snapshot of the full range of services offered by Eqvista. To know more, contact us today!