“I assumed my lawyers would have my back on this. I was wrong.”
Summary: A cap table shows you who owns what in your company. It calculates how the option pool shuffle and seed debt lower your Series A share price. This article includes a spreadsheet you can use to build your very own cap table.
A capitalization table shows you who owns what in your company. It lists the company’s shareholders and their shares.
You can build your very own Series A cap table with this Excel spreadsheet:
And here’s a screencast that walks you through the spreadsheet:
The cap table shows you what you really own.
Many entrepreneurs think the pre-money valuation determines their percentage ownership of the company. They forget about the option pool shuffle. They forget about seed debt and its discount. Then they blame their lawyers.
Use this cap table to see how much you really own after the financing. Find something else to blame on your lawyers.
This cap table is simplified.
Our cap table includes the major economic levers of a Series A: common stock, preferred stock, options, and convertible debt. It doesn’t include warrants, vesting, debt interest, liquidation preferences, dividends, the Series B, et cetera.
Cap tables can be a little tricky to understand if you’ve never worked with one before. So we kept it simple.
Your lawyer or accountant will deal with the details that aren’t included in this cap table. They will maintain the company’s official cap table.
Customize the cap table and share your modifications.
This cap table should meet your initial needs and you can customize it to your specific situation.
You’re welcome to distribute your modifications under our Creative Commons license. (If you don’t understand what this means, leave the licensing info in the cap table as-is and distribute your modifications all you like!)
If you submit your modified cap table in the comments, we’ll build up a great collection of cap tables.
This cap table may have bugs.
This is Version 0.9 of the c(r)ap table and there may be bugs. One bug can make all the calculations useless. Come back to this article to download future revisions.
Disclaimer: This cap table is provided as-is, with no warranties. It is not fit for any purpose!
Do you have any suggestions or questions?
Please leave your suggestions and questions in the comments and we’ll improve the cap table!
# Drew Houston · Jun 20, 2007
This is great; we (probably like many other entrepreneurs) tried our hand at hacking up a similar spreadsheet on our own but this is a far more flexible and easy way of visualizing various scenarios. Thanks for putting this together.
# Anonymous · Jun 30, 2007
Does this mean that the number of shares (in the example 2m) that each of the founders has would remain unchanged even after IPO?
I mean, are there other events at which more shares are allotted to the founders ?
And how and when should this number of 2,000,000 be decided ?
Is it decided keeping in mind what the target share value should be ?
# Nivi · Jul 23, 2007
I’m not an expert on very late stage or post-IPO matters so I can’t comment on additional option allocations at that stage.
Prior to the IPO, founders or key management may be issued more shares if they have been overly-diluted over time. The investors want to keep the founders/management highly motivated.
But this is more likely in a down round or a recap. This is not likely if the valuation is monotonically increasing.
We picked 2M shares because we wanted the share price to be approximately $1. The exact number of shares is not relevant as long as they are sufficiently granular, e.g. each share isn’t worth $10,000. You need to be able to give out shares without giving away $10,000 at a time.
There may be some other legal niceties associated with the number of shares—ask your lawyer.
# Yokum Taku · Jul 11, 2007
I think the formula in your spreadsheet for calculating price per share is a bit too complicated for an entrepreneur to proof.
As you are aware, your formula basically means
= [(premoney valuation) - (value of option pool top up shares) - (value of bridge loan)] / (premoney common and options)
I don’t think that this is particularly intuitive or the way most people would conceptualize how you get to price per share.
I typically set up spreadsheets on the price per share to be:
= (premoney valuation) / (fully diluted premoney shares including option pool top up and bridge conversion shares)
I would suggest revising cell D2 as
=B3/(C17+C19+C15)
which written out would mean
= (premoney valuation) / [(premoney common and options) + (option pool top up) + (shares issued upon bridge conversion)]
You then need to turn on iterations in tools, options, calculations — since the option pool number and the bridge conversion shares number needs to iterate to get into the fully-diluted share number to get into the price per share calculation. I assume that you wrote the formula the way you did to avoid the circular reference.
There are, of course, lots of additional bells and whistles that one could add (taking into account how the liquidation preferences work (participating/non-participating/cap) and whether options get exercised if they are in the money or not), but probably too complicated for the average user.
We build custom spreadsheets to plan for M&A outcomes where you can enter the sale price, and we calculate on a shareholder by shareholder (and optionholder) basis (or at least a class/series of stock basis) exactly how much (net) money they get. We add if/then formulas to determine automatically whether it is economically beneficial for an optionholder to exercise their option. In other words, if you put in a low liquidation price, then the price per share to common might end up being below the option exercise price (and the spreadsheet is smart enough to figure it out). For example, for a non-participating preferred, there is a finite pool of money left to go to the common, and whether options are exercised or not will affect the price per share to common (which is a circular formula).
We also build spreadsheets to model the effect of a “down” round financing and how the anti-dilution adjustment results in more pre-money shares, which drives the price per share down (which is a circular formula).
This is why I expect potential paralegals that I hire to have strong math skills.
I liked the video.
# Adam · Jul 15, 2008
Sounds great Yokum. Why don’t you post your xls here to help out the community of entrepreneurs.
Adam
# Scott · Dec 30, 2008
Does anybody have a good spreadsheet for a cap table that has gone through several rounds of financing (debt and equity) and goes into a bit more detail than the basic one provided here? I am referring to some of the more complex additions that Yokum is speaking of. If not, any good resources that explain how to build and take such things into account?
# Yokum Taku · Dec 31, 2008
I posted a sample liquidation preference spreadsheet at:
http://www.startupcompanylawyer.com/2008/11/17/what-does-a-liquidation-preference-spreadsheet-look-like/