Cap Table Management Platforms
A cap table is an important part of your business's capital structure because it allows investors to easily see how much money your business has, as well as how it is being used. A cap table shows how your business uses funds, as well as how much control you have over those funds. If you own your business 100% and have complete control over its finances, you have a far different situation than if you have a small amount of investment but not enough equity to run the business the way you would like. In this scenario, you might want to consider using a cap table. A cap table shows how much equity your business has compared to the value of the total company.
A cap table helps you and other investors know your business s overall capital structure, and this makes it much easier to judge your venture's eligibility for a capital round. To begin, your startup cap table is actually a legally binding document spelling out the exact equity structure of your business. So, that means any mistakes in your startup capital table management are mistakes on your company s official capital structure documentation.
Investors who are seeking late stage funding for any reason will want to be careful about who they entrust their money to. They need to know that you have accurate and up-to-date information regarding your funding rounds. If you don't have a cap table management system in place, then you risk handing the late stages of your venture over to the wrong investors. These investors could potentially use the capital to run your business into the ground. So, even if you have angel investors lined up, you must have a cap table management system in place.
Investors without a capitalization table often make the mistake of assuming that equity shares and preferred stock is the only financing available for their startup. Equity ownership is only one form of financing that a business can obtain. For instance, venture capitalists may view a private placement as a more appropriate venue for raising capital than an initial public offering (IPO). The advantages and disadvantages of each are significant and must be weighed carefully before a decision is made.
A cap table must also ensure that all shareholders are treated fairly. This is critically important because the interests of the founding stakeholders become intertwined with the interests of the company. An IPO or PE could easily lead to excessive equity compensation given to the wrong set of executives. This could result in dilution of control of the company in its entirety. In addition, too few initial investors can have an impact on a company's financial performance. As such, the interests of current stakeholders must be considered and given adequate weight to ensure fair valuation of the company.
Another advantage of cap tables is that they can often provide information beyond cost of capital for new businesses. These tables typically include the companies' enterprise value, market cap, beta, debt and other metrics. Through these numbers, potential investors can determine the viability of a company. Additionally, these numbers can allow a company to identify opportunities for additional growth and expansion without having to rely on venture capitalists or other outside funding sources.
Cap table services should be managed through a company's investment group. One of the best ways to manage a company's portfolio of equities is to utilize a standard, fully integrated investment management system. In addition to standard equity and cap tables, this type of system should include Carta, an industry-specific indicator that provides companies with quantitative information about their sectors. In particular, a Carta index will include data about sectors as well as relevant company information, industry trends and important data on capital spending.
A Carta system should also be used as part of an overall equity management process. For example, it is often used during the review of mergers and acquisitions. This process allows companies to compare buyouts from different industries based on overall performance. In addition to equity and cap tables, companies should also be able to use a standard database to determine buyout targets. During a typical buyout, one or more companies could be vying for a specific sector, making it essential for a company to have a complete database covering all sectors.
Cap table solutions should also be able to support a wide range of scenarios. In particular, a web-based application should be capable of supporting a wide variety of scenarios. For example, it is common for organizations to want to identify the impact of mergers and acquisitions on a company's balance sheet. However, a web-based application should also be capable of supporting scenarios where a company is forced into bankruptcy. Similarly, startups is common for organizations to enter into sales negotiations where the outcome may be determined by intangibles such as cash flow and credit ratings.
Finally, it is crucial for a cap table solution to support convertible notes. Specifically, a convertible note is created when an individual member of a corporation, usually the CEO, offers to purchase a number of common stock units. Upon the purchase of these units, the units will convert into shares of the parent company's capital stock. The parent company will need to have a cap table in place in order to lock in the value of the units. Additionally, if the number of units purchased does not cover the equity grants being negotiated, the convertible notes will be issued at a discount and repayment of the cap table will be determined by a future date.
Cap Table Management platforms are designed to provide companies with the tools necessary to manage their cap tables. These platforms use an intuitive database that allows users to easily manage and maintain cap tables. Furthermore, various components such as conversion strategies and conversion tracking are provided. In general, a web-based cap table management platform is more cost-effective than traditional software solutions. Cap Tables can provide a company with significant advantages, however they must be properly managed and maintained.