Who’s going to ask for my cap table?
Helping you understand who should be asking for your cap table and what will they ask
Although decent cap table management is important for a company to keep track of their equity distribution, it is not the only reason to do so. From time to time, a founder will be asked to present data that can be gathered solely from the cap table.
This third and final article in the series “Mastering the Cap Table” is made to finalize a strong base in understanding the world of the cap table. Here, you will discover who are the people that might ask for information from your cap table. Then, understand what they might ask and the reason behind the request.
Typically, two major bodies of interest might ask for information from your cap table: Investors, and audit teams. The investors have subsets with little difference yet specific requests. We divided the investors into VC (Venture Capital) firms and private investors.
What will they ask?
As the cap table, itself is considered classified by most companies and shouldn't be shared with anyone, the information it holds is being asked often. Most financial conclusions as well as some documentation can be subtracted from the cap table. Therefore, processes like due diligence, prospectus, and valuations will often require utilizing the cap table. What exactly will be asked? Here’s the answer:
Investors tend to fund companies that they believe will show them profit eventually. This undisputed and obvious claim explains what an investor will look for in a company. Private investors commonly care about the bottom line, how will they be diluted at the end of the road? To answer this, there are two things to take into consideration: the past and the future. “The past” means what happened until now, and “the future” is what should be the dilution in case of some potential scenarios.
If they are potential investors, it is crucial for them to know what piece of the pie will be theirs and what was promised to current investors. This information can be taken from the cap table directly, if you took notes from our last article “what should be on my cap table” or you use an automated cap table the information is available to you anytime, effortlessly.
For Current and potential investors alike the what-if is significant in their daily decision-making process and portfolio management. Knowing how they might be diluted and being able to plan ahead with a glimpse of the future is a reassurance that easily relaxes current investors and encourages potential ones to invest. To create funding scenarios with an updated spreadsheet cap table a professional is required and it might take a few weeks so take that into consideration. If you use Altshare’s automated cap table, these scenarios can be made seamlessly, with a click of a finger.
VCs also look at the dilution section but the reason is somewhat different. Companies that invest in startups believe they know what turns a company into a success, so they make sure their voice can be heard and make a difference. How do they make sure it's certain their influence on the company's course remains? With enough seats on the board of directors of course. Before investing in a company, VCs make sure they can steer the company in the desired direction. Then, every time a funding round occurs they look closely to make sure the dilutions don't weaken their voice and influence.
It goes without saying that an audit team doesn’t care about dilutions and control distribution in the company. What do they care about? That the process you are going through is filled with accurate details and all the information is clear. Any process has its own required information and extant but it's not up to you to provide any specific information. Despite its sensitivity, it is commonly required to hand your cap table “as is” to the audit team.
If you use a spreadsheet cap table, make sure it is updated and no allocated options, RSUs, or investors have been neglected. For the automated users, Just export the cap table as a PDF to your digital data room and open access for the audit team.
Remember, an un-updated cap table will cause delays in any process you are trying to accomplish. If it’s a 409A valuation, for example, that delay will end with a headache from the constant back and forth. In a harsher scenario, if the process is due diligence for an investor, the issue might stop him from chipping in as it will cloud clearance on his anticipated dilution (and as we said, this is what investors are mostly interested in).
The cap table holds crucial information in a company so it is considered confidential. That being said, when interacting with investors and audit teams, they might ask for certain data or even the whole table. The data often asked can be easily found when the cap table is well updated and if intelligent scenario modeling has been done.
This finalizes a three articles series to jump-start your cap table knowledge, first, we showed you the common options for a cap table administrator so you can choose your best fit. Then, we explained what should appear on the cap table and what better to put aside. Now, you know what information will be asked from your cap table and who might ask for it. To continue your journey and become a true cap table master, we offer you to visit our glossary for specific definitions and or our blog to expand your horizon further.
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