A pre-investment cap table is an essential tool for founders to have in place before raising investment capital. By mapping out equity ownership and distribution ahead of time, founders can better understand how much equity they can offer investors and retain control of their company. Having a cap table shows potential investors the company’s structure and shareholder positions. This article will explain what a pre-investment cap table is, why it’s important, and provide a template example founders can use before raising a seed or Series A round.
What is a pre-investment cap table?
A pre-investment cap table is a spreadsheet that details the ownership breakdown of a company before any investments. It outlines all the shareholders, number of shares owned, share price, and percentage of ownership. This gives founders clarity into equity allocation before bringing on outside investors. A cap table evolves over time as more investors and shareholders come onboard. Having an initial version in place is crucial for founders to understand their ownership position and plan accordingly for future fundraising rounds.
Key reasons a cap table is essential pre-investment
There are several key reasons why founders should have a cap table prepared before raising capital: 1. Understand equity split – A cap table shows founders their percentage ownership and share number. This helps in discussions on equity distribution amongst co-founders. 2. Plan for dilution – As more investors come onboard, founders’ shares get diluted. A pre-investment cap table helps estimate dilution so founders retain desired equity control. 3. Share details with investors – During fundraising discussions, investors will want to know cap table details. Having this prepared signals professionalism. 4. Roadmap for ESOPs – Knowing the equity structure helps create employee stock ownership plans. Shares can be earmarked for ESOPs in advance. 5. Set share value – The cap table will establish the share value, helping set the investment valuation.
Key components of a pre-investment cap table
Here are the key components founders need to include in a pre-investment cap table: – Company name and date: This identifies the cap table version with a date stamp – Shareholders: List all founders, co-founders, and any early employees that have equity. – Number of shares: The share amount assigned to each shareholder. – Share class: Common or preferred shares designation. – Share price: The set price per share. – Fully diluted shares: Total of all shares accounting for any set-aside ESOP shares. – Percentage ownership: Of total fully diluted shares, the percentage stake per shareholder. – Vesting schedule: If any shares have set vesting periods. – Reserved shares: Any shares earmarked for ESOP or future allocation.
Pre-investment cap table template
Here is an example template of a simple pre-investment cap table: [Company Name] Cap Table As of [Date] Shareholder Name Common Shares Share Price Total Value Ownership Founder 1 500,000 $0.10 $50,000 50% Founder 2 300,000 $0.10 $30,000 30% Founder 3 100,000 $0.10 $10,000 10% Employee 1 50,000 $0.10 $5,000 5% Employee 2 50,000 $0.10 $5,000 5% TOTAL 1,000,000 – $100,000 100% This shows a straightforward pre-investment cap table with the company name, date, shareholders, number and share price of common shares, total value per shareholder, and percentage ownership. Founders can add other components like preferred shares and reserved shares as needed.
Having a detailed cap table mapped out prior to raising investment capital is a crucial planning step for founders. By understanding the equity breakdown and ownership percentages, founders can better plan for investor discussions and set the stage for future ESOPs. Starting this early allows founders to focus negotiations on company valuation and investment terms. Using a cap table template simplifies the process of creating an initial version that can be adjusted as the company grows.