Convertible Notes and Startup Funding
February 12, 2025
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The capitalization table is a very important record for any startup company. These tables provide a clear and unambiguous report of who owns and controls what percentage of the startup’s shares. It is considered to be the final and irrefutable record that provides details about the ownership of the company.
Since decisions involving financing, sale, or restructuring of a startup tend to be complex and require several parties to sign off, the capitalization table proves to be an important source of information. The study of these tables can help investors realize which stakeholders they need to convince in order to obtain a sign-off.
In this article, we will understand what capitalization tables are and why they are considered to be so important in the context of a startup organization.
The cap table of any startup company has several key components. The details of some of these components are mentioned below:
Normally, the number of shares which exist for a company should be fairly easy to calculate. However, when it comes to startup companies, this calculation is not so simple. Startup companies tend to use different types of stocks and individual investors may have the capability to completely change the shareholding pattern of the company.
The presence or absence of voting rights for each of these categories should be clearly mentioned. The cap table should show what the fully-diluted shareholding pattern of the startup company would look like.
Cap tables are considered to be an important document because they are used by several different stakeholders for different purposes.
The preparation of the cap table is not a one-time activity. In the case of start-up companies, employee options, and the founder’s stock keep on vesting over a period of time. Also, the valuation of the company may change from time to time. Hence, the founders must ensure that the cap tables are maintained with up-to-date information to enable quick and accurate decision-making.
The bottom line is that cap tables are important for several reasons. They can be considered to be proof of ownership and provide a dashboard-type view of the different stakeholders of the company.
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