What is a cap table and what is it used for?

A capitalization table is a table showing the equity ownership capitalization for a company. The capitalization table is essential for financial decisions involving equity ownership, market capitalization, and market value. Capitalization tables help private companies maintain the calculation of their market value.

Why is valuation cap important?

The Valuation Cap is the most important term of a convertible note or a SAFE. It entitles investors to equity priced at the lower of the valuation cap or the pre-money valuation in the subsequent financing. That means that you will get twice as many shares as the series A investors for the same price.

What should a cap table include?

A capitalization table (or “cap table”) is a list of all the securities your company has issued and who owns them. Securities include stock, convertible notes, warrants, and equity grants.

Does cap table include debt?

Apart from recording transactions, a cap table also comprises many legal documents such as stock issuances, transfers, cancellations, conversion of debt to equity, and other documents. The executives must manage all these transactions and documents accurately to show the events since the company’s inception.

What should be included in a cap table?

The cap table should be designed in a simple and organized layout that clearly shows who owns certain shares and the number of outstanding shares. The most common structure is to list the name of investors/security owners on the Y-axis, while the type of securities is listed on the X-axis.

What should be included in a capitalization table?

A more complex table may also include details on potential new funding sources, mergers and acquisitions, public offerings, or other hypothetical transactions. Capitalization tables are typically used privately by private companies to provide information on a company’s investors and market value. Below is one example of a capitalization table.

How are convertible loan notes reflected in the cap table?

Typically when a Series A funding round is undertaken it will also trigger the conversion of convertible loan notes into equity shares in the business and this also needs to be reflected in the Series A cap table.

What is a valuation cap on a note?

A “valuation cap” entitles note holders to convert the outstanding balance on the note into shares of stock at the lower of (i) the valuation cap or (ii) the price per share in a qualified financing (or, if there is a discount in the note, then the discounted price per share).