What is a Clean Cap Table?
Having a clean cap table is important since it is the first thing investors look at before they invest in your company.
A cap table is very important for a founder to keep track of their shares. Founders would be able maintain control of the details of their ownership and cap table once investors and employee ownership come into the picture.This can be done using the best cap table management application as well. In short, it is very important to keep a clean cap table.
Clean Cap Table
A cap table of a company lays out all the debt, equity ownership, and liquidation rankings of different lenders and investors in the company. For many startups, the list normally consists of the shareholders and their ownership percentage. This is because startups rarely attract traditional debt lenders. But equity also takes different forms including convertible debt, preferred stock, and common stock. This just means that a cap table is always an intense list of who owns what and is very important for the founder to keep track of these things as it helps in making a lot of important decisions and filing for various forms with the IRS, too.
Even though it might sound like an easy task, maintaining a cap table is not so easy. And if it’s not made properly, you can end up having a messy cap table. With a messy cap table, you will end up making bad choices for the business. For instance, let us say that you do not have a clean cap table and are not able to see how much ownership has already been given out and how much you can afford to give in exchange for capital. With this, you end up giving a huge chunk of the company to the investor thinking it is not much. Keeping a clean cap table means that all the transactions are added properly and you just need a few minutes to look at the table and make your decision.
Importance of having a Clean Cap Table
Keeping a clean cap table is much better and less painful than cleaning a messy cap table later on. And having a clean cap table is important since it is the first thing investors look at before they invest in your company. And not just this, it would also help you make faster and better decisions. With a messy cap table, you can end up making mistakes in filings for the IRS, or in how much ownership or type of debt you offer to an investor. Along with this, you will lose many potential investors who ask looking at the cap table. When they are not able to get a clear idea by just looking at what you show them, they will end the deal and move to the next company.
How to clean up a Messy Cap Table?
The idea behind cleaning a cap table is simple: restructure the cap table so that who owns what can be seen clearly without surfing through pages or calculating things. It should also show the market price and all the equity classes that are there in the company. To restructure the cap table is quite easy. But before we talk about how to clear it, you need to know that using an excel sheet or manual paper to keep track of your transactions is not going to cut it all the time.
Here are the steps to clean a Cap Table
- Find an application that can help you sort everything and add the details. One great cap table management application is Eqvista. Using a cap table application is much better than using Excel sheets or just adding the details manually on the paper.
- Add in all the details, and look for things that were missing in your messy cap table. Take time to pick up each and every transaction and add them sequence-wise into the app.
- Make sure you work through and add all the primary and secondary transactions to ensure that the cap table application has recorded every transaction. This is important since it will help you in many situations including the events of an IPO, acquisition, or liquidation.
How does Eqvista help to maintain your cap table?
Eqvista is a cap table management application that is straightforward and easy to use. With its advanced features, it has become quite easy for anyone and everyone to maintain their cap table. So, even if you have a big enterprise or a small startup, Eqvista is the perfect place to handle all your company’s shares and manage them easily. Learn more here!