How to communicate cap table changes to stakeholders?
Communicating with the stakeholders about any changes to the cap table would enable them to make wise investment decisions.
Good internal communication processes raise the 50% probability of companies having reduced staff turnover. Informing the relevant stakeholders of the changes within the company is vital to ensure smooth operations. Regarding the cap table, there could be various reasons to change it, including a fresh funding round and share issuing.
Communicating with the stakeholders about any changes to the cap table would enable them to make wise investment decisions and grasp company operations.
Let’s see how to communicate with the stakeholders whenever there is a change in the cap table, how to do it, and the importance of cap table software in making the communication process more effective.
Reasons for Cap Table Changes
Let us consider a company Tech Corp, a software company delivering products that seamlessly integrate into everyday life, enhancing productivity, efficiency, and overall user experience.
After developing their products, they secured funding from investors to expand their market.
| Pre-Funding | Post Funding | ||
|---|---|---|---|
| Company Value | $10,000,000 | Company Value | $12,500,000 |
| Number of Shares | 2,000,000 | Number of Shares | 2,585,000 |
The company decided to take an investment in the form of “Seed” funding from investors. The total amount raised was $2.5 million to develop its product and expand its market. With this investment, the share price buy-in was $5.00 per share.
| Investment Amount | $2,500,000 |
|---|---|
| Price Per Share | $5.00 |
| Number of Shares | 500,000 |
Key Changes in the Cap Table
- The funding amount of $2.5 million has been issued to shareholders as “Preferred Shares” at $5.00 price per share.
- An employee “Ashley James” has partially exercised 10,000 options to common stock. The remaining 20,000 options are held by the employee.
- An investor “Bill Todd” has converted the SAFE note to 150,000 common equity.
About the Cap Table
- The company has two founders (with 1.5 million shares) have issued.
- The type of security – common shares, options, and warrants to shareholders.
The role of shareholders in the company – Founder, Advisor, Investor, and Employee. - 2.0 million common shares to its shareholders at $0.0001 price per share.
- 500,000 preference shares to its shareholders at $5 price per share.
- 60,000 stock options to its shareholders and has authorized 60,000 stock options to be granted in the future.
- 25,000 warrants have been issued to its shareholders.
- In total, 2.5 million shares have been issued to its shareholders.
Here’s the cap table for the company along with the changes summarizing the ownership structure and capital committed.
| Shareholders | Role | Common Shares | Common Shares-Ownership | Seed | Preferred Shares -Ownership | Options | Warrant | Total shares | Total Shares -Ownership % | Capital |
|---|---|---|---|---|---|---|---|---|---|---|
| Jessica Stewart | Co-Founder | 500,000 | 25.00% | 0.00% | 500,000 | 19.34% | $50 | |||
| Edward William | Co-Founder | 1,000,000 | 50.00% | 0.00% | 1,000,000 | 38.68% | $100 | |||
| Clara John | Advisor | 0.00% | 60,000 | 12.00% | 10,000 | 70,000 | 2.71% | $300,000 | ||
| Steve Mark | Advisor | 10,000 | 0.50% | 45,000 | 9.00% | 55,000 | 2.13% | $225,001 | ||
| Louis Richard | Advisor | 30,000 | 1.50% | 60,000 | 12.00% | 15,000 | 105,000 | 4.06% | $300,003 | |
| Ashley James | Employee | 10,000 | 0.50% | 50,000 | 10.00% | 20,000 | 80,000 | 3.09% | $250,001 | |
| Bella Micheal | Investor | 0.00% | 50,000 | 10.00% | 25,000 | 75,000 | 2.90% | $250,000 | ||
| Peter Anderson | Investor | 0.00% | 50,000 | 10.00% | 50,000 | 1.93% | $250,000 | |||
| Peter Henry | Employee | 70,000 | 3.50% | 50,000 | 10.00% | 120,000 | 4.64% | $250,007 | ||
| Jones Blaze | Employee | 0.00% | 20,000 | 4.00% | 10,000 | 30,000 | 1.16% | $100,000 | ||
| Robert Lee | Employee | 140,000 | 7.00% | 32,000 | 6.40% | 172,000 | 6.65% | $160,014 | ||
| Bill Todd | Investor | 150,000 | 7.50% | 33,000 | 6.60% | 183,000 | 7.08% | $165,015 | ||
| James Smith | Employee | 90,000 | 4.50% | 0.00% | 5,000 | 95,000 | 3.68% | $9 | ||
| Anderson Hooper | Investor | 0.00% | 50,000 | 10.00% | 50,000 | 1.93% | $250,000 | |||
| Shares available for issuance under the plan | ||||||||||
| Total shares Issued | 2,000,000 | 100% | 500,000 | 100% | 60,000 | 25,000 | 2,585,000 | 100% | $2,500,200 | |
| Price per share | $0.00 | $5.00 | ||||||||
The cap table shows the distribution of shares after restructuring along with ownership percentage and capital committed by the company.
From the above example we understand that Cap table changes can happen for many reasons. A few of them are:
| Reason | Description |
|---|---|
| After a funding round | When a company raises new capital through equity financing, the cap table must be updated to reflect the new investors, their ownership stakes, and any changes to existing shareholders' percentages. |
| After options exercise | When employees or investors exercise their stock options, converting them to actual shares, the cap table must be updated accordingly. |
| Convertible securities conversion | When convertible securities like notes or SAFEs convert to equity, the cap table must be updated to show the new equity stakes |
| Investor actions | When employees or investors exercise their stock options, converting them to actual shares, the cap table must be updated accordingly |
| Changes in company structure | As companies grow and evolve, changes in ownership structure due to mergers, acquisitions, or restructuring need to be recorded in the cap table. |
How to communicate cap table changes to stakeholders?
Lets, start this section with an example of how a startup communicates cap table changes to its stakeholders.
Zen Innovators is a growing company that develops innovative software products for businesses to enhance productivity and efficiency.
The company launched a fundraising campaign to expand operations, develop new products, and grow its market presence.
Key Changes in the Cap Table after Funding
- The funding amount has been issued to shareholders as “Preferred Shares”.
- The preferred shares have been categorized based on the funding round.
- The ownership percentage of total shares held by shareholders changes with the issue of preferred shares.
To communicate the key changes in the cap table to stakeholders, the company made use of cap table management software and cap table report.
- Eqvista, one such software, manages shareholders, common equity, cap tables, and company filings in one place without any trouble.
- The cap table report holds all current information regarding the company’s cap table that can be shared with stakeholders. With Eqvista, the company can generate the cap table report by adding the details in the application.
Cap Table Report
A cap table report holds updated information on the company’s cap table. Listing all kinds of securities in the company, shares issued, fully diluted shares, capital committed, and ownership percentage.
By following these methods, the company ensures that stakeholders are well-informed about changes in the cap table.
From the above case of Zen Innovators we understand the reasons for cap table changes, let us now understand how companies can communicate those changes to the stakeholders.
| Aspect | Description |
|---|---|
| Provide regular updates | Frequent updates help increase the stakeholders' openness and confidence that the business is properly handling its shareholding structure. |
| Use clear and concise language | keep the language simple and to the point Instead of using technical jargon . |
| Highlight key information | start the communication by compiling notable changes in the cap table including the number of shares issued, new shareholder data, and how this would impact the present owners. |
| cap table management software | By using cap table management software, company owners no longer need to provide manual updates because stakeholders may access real-time stock data in the cap table. |
| visual representations | Pie charts, graphs, and other visual aids can help stakeholders better grasp the changes to the cap table and complicated statistics. |
| Address questions | companies should understand stakeholders' possible queries and address them before they arise. Companies should be able to explain this in the communication before the stakeholder raises queries |
| Maintain confidentiality | Strict access limits inside the cap table management system will prevent anyone other than the stakeholders from accessing the data. This builds confidence among the interested parties in the security and careful handling of their data. |
| Offer individual consultations | Businesses should offer a choice for one-to-one consultation so that these stakeholders may go over their issues in detail. |
Following this strategy can be quite helpful for important investors or key workers carrying complicated equity.
How can we effectively communicate through cap table software?
When communicating any changes and having better cap table management, companies can utilize the cap table management software to make the process more effective. The following is how:
Overview of cap table management tools
Startups usually need cap table management tools to stay on trend and prevent manual procedures. Eqvista offers a fix for keeping accurate ownership records, distributing equity, and handling shares.
We also provide cap table management tools so businesses may have real-time access to the most recent and correct data. Our simple method lowers administrative overhead by automating tasks, reducing errors, and making communication more efficient.
Templates for cap table reports and updates
Cap table templates for reports and updates let companies communicate more easily. Among the templates to take under review are:
- Create a template for equity ownership that provides companies with a synopsis of their ownership structure, including the securities issued, overall share count, and ownership percentages.
- To cover the vesting durations for every equity owner, consider designing a vesting schedule report template showing the total number of shares vested and unvested over time. Employee communication depends on this and guarantees the openness of equal compensation.
Recommended communication platforms for stakeholder engagement
Eqvista provides an efficient cap table management tool to enhance stakeholder engagement. With Eqvista’s support, stakeholders will have direct access to the company’s stock information, improving communication. With these capabilities, the company can facilitate transparency and stakeholder involvement in the company’s overall performance.
Utilize Eqvista’s Cap Table Management Software for Effective Communication Among Stakeholders
There are several reasons to update cap tables, and communicating with stakeholders helps to build openness and confidence. Companies may quickly simplify communications by using Eqvista’s cap table management tool. Eqvista gives stakeholders real-time access to the ownership structure and automates tracking and updating ownership changes on our user-friendly platform.
Companies may streamline communication through our platform and concentrate on strategic decision-making, enhancing investor relations and governance. A robust software platform from Eqvista enables businesses to build a basis for long-term development and compliance and satisfy immediate communication needs.
Contact us today to know more about how we can enhance your company’s cap table management!
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