What is the Capital Table?
The term "Capital Table" refers to the partnership agreement between a partner and a venture-capital firm. In essence, it is an examination of the partnership's percentages of ownership, value of equity, and any dilution of equity during ownership rounds. A Capitalization Table provides this information for each partner. It is often used by venture-capital firms when considering an initial public offering ( IPO ).
An examination of a capital table is relatively simple to do. You simply need to look at the percentage of shares owned by the partner, along with their individual ages on the day of the offering. This will give you an idea of the current value of the partners' shares. It is important to note that if the partners did not own 100% of the shares on the day of the offering, they do not have to own all of those shares. For instance, a younger founder could have 100% of the shares but only have a half shareholding pattern.
A Capitalization Table represents the percentage of total ownership. It shows how much total ownership an investor has, compared to the total number of shares issued. This includes the value of all common stock plus the value of preferred stock or securities in which the company is invested. In startups , the cap table will be provided to investors free of charge as part of the partnership agreement.
It is important to know what the value of all these different types of ownership is. Most private equity firms use a Cap Table to determine the value of startup ownership. They do this by dividing startup stake by the value of the total capital structure. The value of all the different equity types is then multiplied by each partner's percentage of overall ownership to get the exact value of their individual stake. Investors need to take this into consideration when evaluating the overall value of the capital structure.
startups who is evaluating the current capital structure of a business should also consider the Cap Table. However, he or she should not take it to be the only basis for that evaluation. The existence and size of the cap table is itself a dynamic matter that cannot be static. Therefore, the current value of the capital structure can change over time.
There are many different ways investors can calculate the value of equity and the most common is the net worth per share. Net worth refers to the value of the firm less the value of its outstanding debt obligations. Most private equity funds today are made up of some combination of retained earnings, preferred stock or other types of non-equity interests. Most venture capital firms use the net worth or gross value of the business rather than the value of the individual equity holders. This is called the gross value of the enterprise or simply the GV.
There are startups to calculate the net worth of a business. startups of these is the Cap Stock ratio which compares the value of the equity shares to the value of the company's common stock. The other method of calculating GV is to divide net worth by net worth per share and then divide the resulting number by one day. Using this method, investors can see how much more money can be borrowed to finance expansion or other major expenditures.
Capitalizing on the cap table is an important part of the process of raising capital for any business. This is why it is especially important to do it right. To help do this, there are a few key points to keep in mind when preparing a capital table: First, never provide too much information about ownership percentages. Second, always obtain at least two estimates of the cost of capital in order to facilitate a fair comparison among companies. Third, do startups on the analysis to make a decision as all estimates are only estimates until a company completes its initial public offering.