What is a Capitalisation Table?
The capitalisation table (cap table) is a single, internally-consistent document explaining how ownership over the company is divided.
When a company is initially set up, 100% of the ownership over the company will typically be allocated to the founders and angel investors, with a specific number of shares allocated to each individual. The cap table records how these shares are allocated.
Subsequently, with the entry of new investors, the cap table can be used to summarise the ownership of the company pre- and post-financing. This enables both current shareholders and incoming investors to understand how their rights in relation to the company are affected once a funding round has passed.
Does my Company Need a Cap Table?
It is not mandatory to keep a cap table given that regulations on record keeping already exist under the Companies Act.
However, a cap table may be particularly useful for startup companies engaged in planning and negotiating capital raising. In fact, a term sheet to prospective investors containing the material terms of a deal will almost always contain a summary cap table.
What Should I Include in my Company’s Cap Table?
A cap table typically records the division of ownership among current shareholders, option holders and convertible note holders. More complex cap tables may also allow for modelling of the effect of further capital raising.
A simple example of a general cap table structure is set out below.
At the Initial Stage
√ Who are the shareholders? When a company is first incorporated, the shares of the company may be held not only by (1) the founders, but also (2) family or friends who own ordinary shares, and (3) early investors who were granted shares (ordinary shares or preference shares).
√ How many shares does each shareholder hold? Are the shares Ordinary or Preferential shares? The latter confers preferential rights on the holders which often relate to dividend distribution, voting rights, liquidation rights.
√ What is the percentage of total shareholding held by each shareholder?
|Shareholder||No. of shares||Percentage held|
|Investor||No. of shares||Percentage held|
Convertible Notes and Share Options
There may also be other investors who lent sums to the company that may be converted to shares under certain circumstances (convertible notes) and employees who were granted share options under an employee share option pool (ESOP).
So, apart from recording the number of existing shares, a cap table may also reflect the potential share percentage if these convertible notes or share options are converted or exercised respectively.
√ How many convertible notes (if any) have been issued to investors?
√ Tip: Record any important details of the convertible notes, such as a discount of valuation cap.
√ How many shares which would be issued if all employees were to exercise their options (if any)?
|Employee||No. of shares||Percentage held|
√ Tip: Insert a column reflecting the diluted percentage of shares held. This enables the existing shareholders to understand how their ownership of the company is affected if more shares are issued, such as when an employee exercises his share option. Voting power is often tied to the number and types of shares held by a shareholder, so investors may find themselves outnumbered as their ownership percentage is diluted.
Approaching Funding Rounds
√ If there is a future round of investment, what is the pre-investment / pre-money valuation (value of the company determined prior to investment money injected into company), number of pre-investment shares, investment amount and post-investment / post-money valuation (= pre-investment valuation + total investment amount)?
√ What is the amount that each investor will pay for shares, which is the price-per-share (pre-investment valuation / pre-investment shares)?
√ How many post-investment shares (post-investment valuation / price-per-share) will there be and what is the post-investment percentage ownership (investor shares / post-investment shares)?
A cap table may eventually look something like this:
|Total no. of pre-investment shares||8,000,000|
|Shareholders||No. of pre-investment shares||Pre-investment percentage ownership||Investment amount||Post-investment shares||Post-investment percentage ownership|
If you need advice on share cap table for the purpose of a funding round for your startup or investment, please feel free to contact me.
This article was written with the help of Monica Heng.