A capitalization table, also known as a cap table, is a record that firms use to keep track of the securities they have issued and who owns them. It is often used by start-up firms funded by venture capital. The capitalization table enables them to separate the securities they have issued according to the round of financing of which they were a part.
Firms maintain capitalization tables so they can keep track of various investors’ ownership interests. It contains a list of all of the securities the firm has issued, and they are sorted according to the type of security issued and the issue date. The table also includes a list of shareholders along with records of how many shares of preferred stock each holds. From this information, the firm’s lawyers can determine the amount of ownership interest each party has in the company.
Some simplified capitalization tables that are intended for quick reference list only the shareholders who have preferred stock in series A, or the first round. Start-up firms issue securities to suppliers of venture capital in rounds. The first round is labeled series A, and future financing is called series B investing. Keeping track of series A investment gives business owners an idea of who their primary investors are.
The capitalization table for a firm can indicate the ownership share that each shareholder has in the company, and dividing a company valuation by the total number of outstanding shares listed in the capitalization table yields a price per share for the company stock. It is important, however, to pay attention to whether the valuation of the company is pre-money, which means it is estimated before a round of investment, or post-money, which means it is estimated after the investment. Pre-money valuations can be misleading because they include not only the value of the company itself, but they also have money built in for an option pool. This is meant to cover additional shares of stock that the company is expected to issue as a result of stock options given to employees it will hire before the next round of financing.
Online templates are available so business owners can create their own capitalization tables. The tables are complicated, however, and provide important investment information. Most of the providers of these templates encourage business operators to hire lawyers to maintain a full capitalization table.