By Ryan S. Silva
Very often some of the most promising early stage growth companies find themselves challenged when asked about their cap table. Simply put, the cap table should list all the securities of the company (i.e., stock options, warrants, convertible debt, SAFE, etc.) and who owns them. This isn’t difficult when it’s just a few people, but as the capital structure becomes more complex from financing transactions, the cap table usually does as well. This is generally because some of the securities may have conversion, anti-dilution, or other features that need to be computed to fully understand their impact on ownership and overall valuation.
There is only 100%
You need to understand all the dilutive features of the securities that are outstanding so you know how much is left to sell and the impact it has on everyone.
Keep it current
Having the cap table up to date allows for sound decisions to be made when raising money and understanding valuations. This will also make modeling various scenarios much easier.
If it’s wrong it could stall—or worse yet ruin a deal
Investors often do a significant amount of diligence on the cap table. If there are mistakes or the underlying agreements don’t align with what’s on the cap table, it could leave investors concerned about what else might be wrong.
Keeping these three things in mind when building, reviewing, and updating your cap table will go a long way in being able to avoid issues down the road.
Ryan S. Silva, CPA, CFE, CVA is a Partner at Wiss & Company, LLP where he provides audit, accounting, tax and advisory services to businesses in a variety of industries with a focus on life sciences, technology, and emerging companies. If you would like to contact Ryan, you may reach him at firstname.lastname@example.org or at 973.994.9400.