How to Build a Capitalization Table

Capitalization Table Example

A capitalization table or also known and often abbreviated as the cap table is a table or ledger providing an analysis of a company’s or organizations’ percentages of ownership, equity dilution, and value of equity in each round of investment by the founders, investors, and other owners or shareholders. Basically, it helps keep track of all the important information related all of its stakeholders. Such information could be about debt, options, warrant, derivatives holders, and claims on the company or organization.

In its simplest form, a cap table represents as a summary of all the company’s securities such as stock, options, warrants, etc., and who owns those securities. A cap table should inform the user:

  • Who owns which securities
  • For how much (price)
  • Which securities are outstanding

A basic capitalization table usually lists down the names of stockholders, the percentage of every stockholder’s ownership, how much capital invested, warrants, options, and other investments. It is also best for companies, organizations, or businesses to create a cap table at their starting period as to be transparent to their shareholders’ stake in the business as well as to manage the securities outstanding of the business. It also helps with ensuring that the founder/s shares is the highest and to not give away more than what the company can sell out.

In a business, it is normal to constantly make decisions that impacts the capitalization especially when it comes to new financing which results to adding a new set of investors. The need to be able to quickly determine whether there are sufficient shares available in the option pool, determine how dilutive the new shares will be, and to calculate the exact number of shares that represents the requested percentage, can be answered by simply building a cap table. With a cap table, you will be empowered to make good decisions as well as answers swiftly.

Create a Cap Table – Capitalization Table Example

There are several formats that one can use to apply when building a cap table. Some would prefer a simple cap table which summarizes the data such as grouping all holders into simplified lists, while others utilize a much more complex cap table which provides a granular detail on the holdings of each type of shareholder and shares. There isn’t a wrong or right format for a cap table as it only depends on one’s needs.

Cap tables are usually created before the start of a venture or the startup of operations. This is why every cap table starts off with an easy format which then turns more complex after a few rounds of financing as well as listing the potential sources of funding, initial public offerings, Mergers and Acquisitions (M&A), and other transactions that affects the capitalization of the company or organization. What makes it even more complex is it will also include many legal documents such as issuance of shares, transferring, cancellation of shares, conversion of debt to equity, and other related documents.

To help the task of creating a cap table easier, building the table in a spreadsheet is preferable. It allows the cap table to be designed in a simple and organized layout which clearly presents the data needed to be documented. Though the task itself sound simple enough, it would still take quite some time to build a cap table. Also, with today’s technology and internet connection availability, one can simply download a cap table template Excel to use as a capitalization table example for reference as well as a starting base.

Depending on what you kind of cap table you want to build, the following should be listed in the table:

  1. Names of Shareholders – these are the names of every shareholder who owns shares in the company
  2. Shares Owned by Shareholders – total number of shares owned by each shareholder
  3. Stock Options – benefits in a form of an option given by the company to an employee to buy stock in the company at either a discount or a stated fixed price
  4. Authorized Shares – total number of shares in the company that is allowed to issue
  5. Outstanding Shares – total number of shares which are held by all shareholders in the company
  6. Unissued Shares – total number of shares available that have not been issued
  7. Shares Reserved for Stock Option Plan – these are unissued shares that was reserved for future employees
  8. Options remaining – total number of remaining shares available to be optioned
  9. Fully diluted shares – total number of outstanding shares which helps the shareholders determine the value of their own shares

You can refer to the steps below showing a capitalization table example:

  1. In a spreadsheet, list down in a column the five basic categories needed to be taken note of: NameSharesInvestmentOwnership, and Value.

  2. Next would be to fill out the first column by listing out all the names of the starting founders and leave a couple of empty slots for future investors. You can also group up investors if they came in waves or groups and you can name it as a “Round of Investment” where the last or most recent investor should be at the bottom of the list. If ever the same entity invested more than once, each purchase should be separated in a new row.

  3. Right next to the first column is the respective shares of each shareholder. Then record according to the total number of shares each entity bought.

  4. Then do the same for the amount of capital invested in the business, recorded under the Investment column. After that, at the bottom of the columns, total up the number of shares and dollars.
  5. Next would be the Ownership column, where you’ll calculate the percentage of each shareholder’s stake in the business. Just simply calculate it by dividing the number of shares each entity owns by the total number of shares held by everyone on the list. This formula is used to calculate the share percentage: Share % = Shareholder Share / Total Shareholders’ Shares

  6. The last column is a bit trickier. Since the value changes every time someone invests, you will have to ensure that you will refer to the last or most recent investor. To calculate the value of the share that each investor owns, you will need to calculate how much an entity paid per share. This can be calculated by dividing the total dollars invested in the total shares purchased by the corresponding investor. Just like as shown in this formula: Price per Share = Dollars Invested / Shares Purchased

The capitalization table example format above is just the most basic, but it will allow you to create a cap table which can represent your company’s current ownership structure as well as be able to help you answer questions by your shareholders and create informed decisions for your company.

Cap Table Template Excel – Free Spreadsheet Template

Looking for a template you can use as a base to start with your task of building a cap table for your company? If you are, then you can download this free spreadsheet template of a cap table here: Simple Cap Table Template Excel – Free Download. This free spreadsheet template of a cap table can be helpful for:

  • Raising Financing – when raising financing, a cap table will provide an overview of your business which means, it can give you a better understanding of what equity stakes you can offer to interested parties and/or for other programs. It will also avoid over drafting shares that your company is able to handle.
  • Employee Shares or Stock Option Programs – with a cap table, you will be able to manage all the employee shares or stock option programs issued by your company
  • Financial Modeling – cap table financial model can help you calculate the dividends, exit proceeds, and returns (IRR) by investors
  • Controlled Shares – with a cap table, the data needed to know who controls the company, how much shares are left, given, and outstanding, are all documented and managed properly
  • Good practice – building a cap table is considered as a good practice to resolve future cases such as explaining the shareholder situations to the tax authorities and regulators

If you’re looking for industry-specific financial models which includes a cap table template Excel, you can look at our selection here: Financial Model Templates with Cap Table. These templates are ready-made by expert financial modelers and easy to use for any kind of user. These are also downloaded by many in different countries such as in the USA, Germany, Australia, Japan, Saudi Arabia, and many more who are in need of assistance when it comes to their financial modeling tasks.

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