Cap table for Series Funded Startups
This article will discuss the concept of cap table and funding rounds.
The rising trend of startups receiving funding in the early stages from a number of sources has led to the need for an effective way to track ownership in these companies. A cap table is a spreadsheet that tracks the ownership held in a company. Generally, the ownership structure of a startup will follow the progression in stages, starting with the seed round, then progressing to the series A, B, and C rounds of funding. As such, the purpose of the cap table is to accurately display the startup’s ownership and track the company’s progress from its seed round to series and beyond. This article will discuss the concept of cap table and funding rounds.
Cap table and series funded startups
The term “cap table” is derived from the start-up funding terminology of “capitalization table”. The capitalization stage of a startup refers to the different stages of funding that a company receives in order to grow and scale the business. In this stage, the company usually creates its business plan and seeks out investment from venture capital firms, angel investors, or even a private individual. Once the investment is obtained, a structure is put in place that defines the share of ownership distributed among the investors.
What is a cap table?
A cap table or capitalization table is a document showing the breakdown of a company’s ownership structure. It displays the different classes of stocks, the equity percentage for each class, often the number of shares and options granted for each class, and details about shareholders. The cap table helps the shareholders track how much of the company they own and how those shares are distributed. In the case of series-funded startups, each additional round of series funding will result in an update to the cap table.
The idea behind a cap table is to keep track of a company’s funding and ownership through all stages of growth. From identifying the level of dilution of the original shareholders to evaluating the risk for early investors, a cap table is essential for every shareholder. This tool becomes even more valuable when it comes to building exit strategies, such as an acquisition or IPO. Thus, every startup, regardless of the stage at which it was funded, should have a cap table.
How does a cap table work for series-funded startups?
In series-funded startups, each round of funding will result in a different level of ownership. The equity portion of the distribution proceeds may be distributed to the new investors and diluted by the old investors, respectively. A firm cap table should track these changes and display the ownership structure that results from each new round of funding.
A cap table is useful for identifying the previous or present level of ownership in the company and will allow investors to make intelligent decisions about partnering with companies as they progress through each funding round. While in case of additional capital is to be raised, it will aid in evaluating the potential dilution, proper allocation of new shares, and their percentage of ownership. As a result, it is increasingly important to have a comprehensive cap table of a company during all stages of funding.
Understand series funding
Series funding rounds are a way for startups to continue raising capital. This allows the company to grow by acquiring new talent, gaining new clients, and expanding operations internationally. However, each time the startup raises additional funds, the previous investors will suffer a level of dilution caused by the additional equity distributed in this round under their ownership. Series funding is the initial financing stage of a startup.
It is intended to provide the company with enough capital to turn an idea into a business and establish its business model. The series-funded startups usually receive several rounds of growth funding, and the additional rounds are referred to as series A, B, C, and so on. It is critical that series-funded startups maintain a detailed cap table to track ownership, as well as the progress of the company. As such, the types of series funding will be discussed in detail in the following sections.
Types of series funding
Series funding can be broken down into three categories:
- Series A – The initial seed funding round is intended to provide a company with the resources necessary to grow and launch its business. This includes purchasing office space and hiring employees to ensure that the business can continue operating. The Series A round is usually targeted at early-stage companies in order to help them achieve a higher level of growth. At this early stage, the goal is to develop and sustain a solid growth rate until additional rounds of funding are required. According to the statistics, the average Series A funding amount is $13 million. The first round of funding will require the new shareholders to purchase a significant amount of equity with a high risk involved. Therefore, it is critical for the startup to provide detailed information about its operations, business model, and financial structure.
- Series B – The Series B round, the second round of funding, is typically used for companies that have successfully raised Series A or have already begun to generate revenue from their business. This round is used to support the company’s growth and expansion by acquiring additional capital and resources. The idea behind the Series B funding round is that the company has a sound business model and can prove it through revenue from sales. The average Series B funding amount is $45 million. This round requires significant investment capabilities to grow the business, and investors usually require a detailed plan outlining the company’s growth strategy and its paths to achieving profitability.
- Series C – The Series C round, which is the third round of investment, is used to support the company’s growth in an expanded market. It is common for companies receiving their Series C funding to have already acquired revenue through sales. This round is designed for high-growth companies and will be used to support the company’s long-term expansion. The Series C round is usually targeted at companies with valuations between $100 and $120 million. While the average Series C funding amount is $50 million, which is significantly higher than previous rounds.
When should a startup prepare for series funding?
A startup should prepare for a series of funding when it is ready to grow from its seed investment stage. Once a company has identified its target audience, validated its business model, and established its growth framework, it is time to begin preparing for the next round of funding. As such, the business analyst should conduct a thorough analysis before deciding on how to execute the next round of funding.
The series-funded startups should know their stage in the growth cycle and how much it will need to raise from each round. Ideally, various strategies should be available for the business analyst to decide the most appropriate round to begin raising additional funds. As a result, timely preparation is essential for companies looking to raise capital. It is recommended that a startup begin preparing for its series funding stage when key revenue milestones have been achieved and once its business plan has been created. But how much funding do startups get in series funding?
How much funding does a startup get in series funding?
On average, a startup can raise from $13 million to $50 million, but the actual amount will vary based on the company’s growth phase, existing popularity, market size, and potential. As a result, the goal is to balance the need for additional capital while focusing on the amount of dilution each new round will cause. There is no fixed amount of funding that a startup should raise; rather, the business analyst will need to thoroughly evaluate the company and its operations before deciding on how much capital it requires.
Cap table for series funded startups
It is important for series-funded startups to track the money raised from each round to its equity. This entails creating a cap table that details the individual shares owned by each shareholder and their value. In order to track the progress of a series-funded startup, the equity value of each shareholder should be updated every time additional funds are raised.
Moreover, a well-planned cap table will allow the company to track the overall progress of its business, identifying where more funds may be needed. Startups should maintain shareholders’ data for your series funding by using a cap table. Therefore, be sure to keep and track your cap table accurately.
How does a cap table help startups get series funding?
Series funding is a popular way for startups to raise necessary funds. In particular, the potential investors should consider the impact of dilution before deciding on the amount of capital they wish to contribute. In this regard, a cap table provides a complete picture of the ownership stake for each investor and how it changes over time. Additionally, a cap table is a part of the pitch deck, which is an essential tool when seeking funding and convincing new investors to participate in the series-funded startups.
In this way, Eqvista, like other strategic advisory firms and service providers to the emerging growth marketplace, provides a sophisticated, digitally enabled, and robust cap table solution for their partners and clients. With a fully integrated platform, Eqvista’s cap table management solution provides all the essential tools for managing shareholder equity and ongoing reporting. Helping thousands of companies to raise funds with the help of a cap table, Eqvista is the best solution to speed up and simplify the process of raising funds for startups.
Manage your series-funded startup’s cap table efficiently with Eqvista!
Raising funds for your series-funded startups is one of the most crucial stages for the company’s future growth and profitability. As a result, cap tables are key tools for future fundraising and can contribute to building long-term relationships with investors. Eqvista is the best cap table management solution to raise funds for series funding startups. We are a full-fledged solution for managing and tracking startup cap tables with a single interface and end-to-end visibility. Start managing your cap table with us! Contact us for more information.