A pre-investment cap table template is an essential financial tool for founders and investors during the early stages of a startup. As startups raise funding rounds, the cap table tracks the company’s ownership structure and equity distribution. Having a cap table template ready before meeting with investors shows preparation and foresight. An accurate pre-investment cap table will list founders, employees, advisors and their stake in the company prior to any outside investment. It provides a clear picture of the current share allocation and helps founders determine the amount of equity to grant investors in return for their investment. The cap table evolves over time as more investors and stock options come into play. Monitoring the cap table and potential dilution at each fundraising round is crucial for maintaining founder and investor interests aligned as the company grows.
A pre-investment cap table lists all shareholders and their equity stakes
The main purpose of a pre-investment cap table is to list all shareholders in the company along with their equity stakes before any institutional investment occurs. This provides a snapshot of the company’s ownership structure in its earliest days. Founders are typically listed with their fully diluted percentages of common stock ownership. Any early employees or advisors who received stock options are also included with their vested and unvested shares indicated. If any convertible securities like SAFE notes have been issued to seed investors, these are listed separately as they have the potential to convert into equity. Having all this information clearly presented makes it easy to see at a glance who owns what percentage of the company’s stock prior to outside investors coming on board.
Founders can model dilution with a cap table template
Founders need a cap table template in order to model the potential dilution of their ownership stake as more investors and stock options are issued. Before sitting down with VCs and angel investors, founders should create versions of their cap table that assume different amounts of capital raised at varying valuations. This exercise gives them clarity on how much equity they need to grant investors in exchange for the desired investment total. Founders can tinker with the numbers to find a dilution level they are comfortable with. They can also see how their shares get diluted further in follow-on rounds as more stock is issued. Avoiding unexpected dilution down the line is a key reason founders need to meticulously model cap table scenarios from the outset.
Investors want to see a cap table first
Savvy investors will ask to see a startup’s capitalization table before talking details about a potential investment. They want to understand the current ownership breakdown and how much equity the founders are willing to give up in the new round. The cap table shows whether founders are maintaining enough shares to stay motivated. Investors also want to avoid messy cap table scenarios where too many shareholders exist. Essentially, the pre-investment cap table begins the financing conversation and serves as the basis for structuring the deal. Both founders and investors enter negotiations informed about the state of play and potential dilution ahead. Having aligned interests and expectations from the start avoids headaches in the future.
A pre-investment cap table template provides startup founders and investors with crucial insights needed to structure financing rounds. Founders can better understand dilution, while investors gain clarity on ownership stakes. Having an accurate cap table ready for review builds credibility during fundraising. Over time, the cap table evolves to reflect new stock issued to employees and investors. Diligent cap table management ensures all stakeholders remain aligned as the company grows and endures the rollercoaster of startup life.