For any start-up founder, it is important to know who is the owner of what at every stage of the entire business. This is more important if money is involved in the business. This is where equity management or even cap table management for startups comes into the picture.
Cap table management is a document that offers you the important information that you need to have a clear understanding regarding the ownership of the company. So, let us discuss some important information regarding cap tables and cap table management.
What is a cap table?
A cap table or capitalization table usually shows a breakdown of the ownership of the start-up by stakeholders. This makes it see to look who is the owner of which parts and even helps the investors to have a clear idea of the capital structure of a firm.
However, managing this capitalization table is not an easy job. This needs to be set up from the early stages of a start-up; still, sometimes, it gets ignored by the founders.
What is cap table management?
Your cap table is a document that is legal and tells about the structure of the equity of your start-up.
This means if there is any mistake in your cap table management, then you can also get mistakes in the documentation of the official ownership of your organization. Moreover, it may also create mistakes in your brand equity management.
This doesn’t show that these mistakes cannot be fixed. However, it means that a cap table that is not correct can be the reason for several significant problems while hiring employees or seeking investments.
Fortunately, managing the cap table is automatable; thus, it can be done automatically through different types of tools and software.
When should start-ups start their process of cap table management?
Start-ups need to ensure that they have a cap table on hand that is error-free from the start. Once a founder starts the funding round, he should use onboard software for cap table management for his company as soon as possible.
What are the benefits of cap table management?
The cap table is a crucial document for different reasons. It is important for a business owner to understand the benefits and scopes of a capitalization table for start-ups as it helps in the better growth and equity management of the organization.
Some benefits of accurate cap table management or equity in management are:
- Power to access legal documents
The cap table doesn’t just help by tracking the number of shares but also the legal documents that are crucial for the legal transaction. With the help of cap table management, you can easily verify and track legal documents that are in the record.
- Investors can gain knowledge
While interacting with the investors, you need to discuss with them how the ownership of your company is structured.
Your investors will wish to have information regarding the previous finance rounds, the present makeup, and also the result of the investments on the shares of the organization. Thus, they can understand how much money they need to have a better position in the organization.
Therefore, if you have any newly founded organization, then building and managing a capitalization table is really crucial for raising the number of your investors and performing equity management.