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Effectively Managing Your Cap Table at Every Funding Stage
As a founder, it’s easy to have a complicated relationship with fundraising and managing equity. Of course, you’re proud of the company you built, its valuation, and its trajectory—but as you take in money, shares get diluted, power gets distributed, and things get far less simple.
It’s important to keep things as simple as possible when you’re a founder, no matter what stage of fundraising you’re in. One of the best ways to do this is to make sure your capitalization (cap) table is on point.
Cap tables are more important than many founders may realize. A strong cap table is an asset in itself, whereas a poorly constructed cap table can cause legal risks and financing struggles down the line.
Here’s a quick 101 on cap table management, and why it’s worth investing in reliable cap table software.
What is a cap table?
In basic terms, a cap table is a spreadsheet that documents the equity structure of a business. It includes information like who owns shares in that business, the funds they’ve invested, what voting rights they have, and how money is distributed between them.
When you’re first starting out with a handful of founders, what goes into a cap table seems simple: Founder 1 owns X% and Founder 2 owns Y%. But as your business grows, and more investors get involved, properly maintaining your cap table becomes more fundamental to securing investment. It also gets much more complicated to maintain.
This is why it’s so important to get your cap table right from the start, in a scalable and trusted format. That way, it serves you and your investors fruitfully at every stage of funding.
Your cap table at every stage
A clean and organized cap table matters just as much in the pre-seed stage as it does in Series C.
You have an idea, maybe an MVP (but probably not), and likely no revenue. This funding often comes from savings, friends, family, and grants. At this stage, it’s important to lay solid cap table foundations, so scaling from here is intuitive and clear.
Plus, when so much of the company is built on “sweat” equity, you want to make sure everyone knows exactly what they’re working for.
During the seed stage, a business has secured some funding—usually from angel investors, seed funds, or accelerator programs—but the product or service may or may not be fully fleshed out. Often, it’s in beta or just launching proof of concepts. If it’s generating revenue, it’s likely not a lot.
Typically, this is also when it starts hiring more staff and considering implementing an Employee Stock Ownership Plan (ESOP).
With more stakeholders and investors involved, this is when a cap table can start getting messy. You need to take extra care to structure your cap table for growth.
Series A & B Funding
Series A and B represent different levels of growth, but their goals and funding vehicles are often similar. For instance, in Series A funding, a business wants to grow its team, increase marketing efforts, drive revenue, further develop the product, and boost its valuation. With Series B funding, these goals don’t usually change.
At both stages, the business is established and functioning, with the goal of continued expansion. Funding is often provided by venture capital firms or other institutional investors—heavyweight equity owners who require an integrated and customized position on your cap table too.
Series C & Beyond
At the Series C funding stage and beyond, the organization has a proven business model, team, and revenue generation. Like Series A and B, Series C funding is usually sourced to help the business become even more profitable and increase its valuation… But with one key difference: It’s also preparing for an eventual exit.
At this point, they may even open up to secondary liquidity, so investors and employees can sell off some of their hard-earned shares.
With many equity shareholders already on a full and complicated cap table, this extra layer of funding, secondary liquidity, and the intention to exit, you can’t afford a mistake on your cap table.
What if I mess up my cap table?
As you can see, your cap table plays a considerable role in the growth of your business and getting it wrong can have serious long-term ripple effects.
Best case, it’ll slow down your business growth and decrease your chances of securing funding. Worst case, you could also get into very expensive legal battles down the line to untangle a mess you likely made earlier on due to ignorance or lack of planning.
If you have less equity than you originally imagined, you may have to sacrifice some of your existing shares to make new investors whole. If you have more, you may need to redistribute shares to all previous parties.
Whatever the case, it’s time-consuming and expensive. You may even suffer a reputational hit. The bottom line: don’t mess up your cap table.
Manage your cap table flawlessly
Luckily, with Figure Equity Solutions (FES), an end-to-end equity management stack powered by blockchain, managing your cap table can be much simpler. The platform gives you the tools to run everything intuitively and keep an accurate, immutable ledger of all assets and transactions, at every stage of your business growth—startups and established business owners alike.
By managing your cap table on the Figure Equity Solutions platform, you can also rest easy knowing that none of your stakeholders get less (or more) than they deserve – everything is exact, indisputable, and auditable.
Don’t risk making costly cap table mistakes in your business. Let the FES platform simplify the complexity for you.