Learn how to read a captable, the easy way.
A capitalization table, otherwise known as a "cap table", is a list showing the distribution of a company's equity and who its shareholders are, typically presented in spreadsheet form. Shareholders can be the founders, the investors, advisors or employees of a company.
Think of it as a record keeping Excel sheet. It's the most important document at any startup since it records who gets paid and how much in case of an exit, IPO or other liquidity event.
Cap tables, provide one centralized location at which both external and internal users of company information can find meaningful data about an organization. Cap tables can be critical to stakeholders of many kinds, including new investors and employees like you.
Cap tables provide information such as:
Above all else, market capitalization is often assessed using the figures from this spreadsheet. Market cap provides an effectively accurate valuation of a company, which can be helpful for internal and external users of company data.
Cap table example from WallStreetPrep.com
According to the cap table posted above, it is evident that Marc has the most significant ownership percentage amongst all the company's investors. It is also possible to make other basic observations, such as the company's total number of investors and the types of securities they are distributing (two forms of preferred stock and traditional common stock).
Let's assume Adam has recently been hired by this firm and has decided to analyze their cap table. Given that he was initially told he would have an equal level of ownership as his fellow officers, he may find it curious that he only owns 1.5% of the common stock while his colleagues own much more respectively.
Upon discovering this, Adam speaks with the C-suites and increases his ownership stakes by advocating for himself. Several months later, the company releases its initial public offerings, and Adam's newly convertible notes significantly inflate in value.
As mentioned above, cap tables are most often used by startups. As an early stage employee in tech, you should make sure all your equity is recorded there. Companies will often use tools like Carta and PartyRound to keep track of eveyone's equity in a centralized ledger.
Cap tables allow employees to...
As evident in the name of this strategy, value tracking allows an analyst to track the progression of overall company value as time goes on. This can be important for employees of an organization to see if their startup is genuinely making progress.
More specifically, employees may have stock options that require frequent progression analysis since they have expiration dates. Analyzing a cap table allows employees to track the valuation of their option pool and determine whether or not the company is indeed making progress.
Employees working for a new startup may be curious as to where the equity of an organization lies. Familiarity with company ownership becomes increasingly essential as the company starts to scale.
A plethora of questions can be addressed by understanding equity ownership, such as
Additionally, employees can predict potential payouts and attempt to estimate dilution if stock splits were to take place proactively. Overall, equity ownership can be quite revealing about who has power at the company.
Sometimes, private companies (especially in tech ) will offer restricted stock units, or RSUs, to their employees to incentivize them to stay with the company. They are not tradable until certain triggers occur — usually there are 2 triggers. This phenomenon is called a double trigger RSU and is commonly implemented at late-stage tech startups.
Typically, firms that offer this form of compensation use a liquidity event, such as an IPO or acquisition, and a time-based trigger to provide these rewards. Once the agreed-upon time period has elapsed, and the liquidity event has occurred, employees can trade their shares.
As the employee, it may be possible to analyze the cap table and determine whether the company has the financial means to payout the units they agreed to disperse ahead of time.
Additionally, an employee can see how much the common share is projected to sell for once it becomes publicly tradable. Therefore, employees who have been offered this form of equity can determine how much of the company stock they will most likely own once the triggers are met, thus making cap table analysis salient in calculating one's own salary.
Cap tables provide enough meaningful data to evaluate the inner workings of an organization.
Deterrents can rear their ugly head in many ways, making cap table analysis increasingly important for employees of new start-ups.
Here are some red flags to look out for:
Cap tables force executives to be transparent while holding them accountable for their actions. Without cap tables, executives would be able to hide important financial flaws of the company from their employees, who should have the right to do their own research.
Companies have a lot of flexibility when deciding with whom and how much to reveal on their cap tables. They don't have a legal requirement to share their cap table with employees, but you'll likely have access to it if you have an equity stake in the company.
Why would companies not share their cap tables with employees? Companies may be hesitant about giving employees access to their cap tables because it's like making the equity portion of salaries public. So, although sharing cap tables can make for a transparent environment, it can also lead to friction amongst employees.
The information provided herein is for general informational purposes only and is not intended to provide tax, legal, or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security by Candor, its employees and affiliates, or any third-party. Any expressions of opinion or assumptions are for illustrative purposes only and are subject to change without notice. Past performance is not a guarantee of future results and the opinions presented herein should not be viewed as an indicator of future performance. Investing in securities involves risk. Loss of principal is possible.
Third-party data has been obtained from sources we believe to be reliable; however, its accuracy, completeness, or reliability cannot be guaranteed. Candor does not receive compensation to promote or discuss any particular Company; however, Candor, its employees and affiliates, and/or its clients may hold positions in securities of the Companies discussed.