Simplifying Start-up Capitalisation – Why Cap Tables Matter
As you scale, your business valuation naturally increases, too. When you were at a pre-seed stage, your start-up was not worth very much because, clearly, there was not that much you could show or claim as value/revenue stream/market uptake etc.
As your business gets stronger, the investment avenues into it may differ – while all money is the same, various chunks of that money will have been used for different purposes. What tranche of money helped you achieved what? Hence, not all money invested in your business had the same impact on your growth trajectory, and each round of investment – let alone your own ‘bootstrapping’ contribution – was apportioned to a certain area of the business.
To keep track of all these fluctuations and their impacts on your bottom line and revenue streams, you need to use a Capitalisation Table, also known as a Cap Table. These tables help you track, in real time, a multitude of variables which are fundamental to the valuation of your business – at any investment stage, including exit – such as:
- The evolution of your valuation
- Shareholders in the business
- Dilution of (whose) shareholders’ shares in case new investors come in
A Cap Table can be as simple or as complex as you may wish to create it. The more complex the Table, the more accurate the picture you, the founder, and your potential investors, will get. The beauty of a Cap Table resides in its ability to generate different scenarios for any change of variables inputted, such as:
- Dilution of just one shareholder’s shares
- Founders early exit
- Issuance of preferential shares
- Employee stock options
- Overall changes in ownership structure
It would be ideal if you started a Cap Table the moment you registered your business; however, few founders have the time and bandwidth to do that. There are, however, several key moments when it is highly advisable that you build (and revise, as the case may be) your Cap Table(s):
- Formal discussions (not even negotiations yet!) with potential investors
- Your funding runway and trajectory (how much cash you are likely to need, and when you are going to need it)
- Agreeing with your co-founders (or key individuals in your business) on who gets how many shares of the business
- Loan-for-shares (investment that usually comes in at an early stage as a convertible debt, which you will have to repay at some point with equity in your business)
If you are unsure where you stand right now, or if you seek clarity on your path to scale or go-to-market, perhaps you need to consider joining our start-up Business Configurator because, in a world where most investors’ attention span is no longer than three seconds (trust us on this!!!), you do need to stand out, don’t you?
We can offer you clear and tangible solutions to all these pinch points and more. And, as a plus, we are solely dedicated to sustainable start-ups. We can help you configure your start-up for both profit and purpose and, after 12 weeks of intensive business coaching, mentoring, dry-pitching, and networking with industry experts, angel investors, venture capitalists and other start-ups in our community, you will see the real difference we can make to your business: we optimise it to be investment-ready.
Join our Configurator to develop your product/service and be confident about what it can deliver to your customer base. Apply now.