How to Create a Startup Cap Table Template
A startup cap table template can be a valuable tool when setting up a business plan for a small business. The startup cap table lists all of a company's initial investors. It also shows the percentage of ownership that each investor has in the business and their stake in the future profits of the business. This information allows a company to properly plan for funding and investment.
A pre-capitalization cap table provides all of this information in easy to read charts. Investors will be able to see at a glance which partners they have invested in and how much equity each one has in the business. The startup cap table template can also provide line charts that break down the percentages of shares held by each partner. Investors can easily see at a glance if the venture they are considering is making money or losing money. They will be able to see if their stake is proportional to the current value of their investment.
Some entrepreneurs prefer to use startup cap tables because of reverse vesting. If a business owner wants to receive cash payments based on an exit deal, he or she can do so by selling shares of stock in the business to the investors that already own the majority of shares. However, many entrepreneurs prefer to take a wait and see approach. They want to see which partners will buy their shares before they sell their shares. Using a startup cap table template, they can make periodic buy backs and retain existing partners to continue expanding their profits.
The purpose of a startup cap table template is to simplify the business planning process. Investors want to see a clear picture of their ownership structure at the very beginning. The owners must decide if there will be an initial public offering or if the business will be sold off in a private transaction. Owners will need to know the percentage of shares that are authorized for the sale and the percentage that will remain owned by the founder. All investors should read carefully over the complete business plan.
Startup caps offer founders a way to calculate their potential earning potential. If all outstanding shares are traded away in a private transaction, then some or all of those outstanding shares could never be cashed in. A cap table provides a means of providing cash flow information early in the business plan process to help determine how many shares can be issued later.
Many companies create startup cap tables for new businesses that use proceeds from an IPO to finance growth capital. The IPO pays the founder and members a portion of the proceeds. Sometimes the founder will receive all of the proceeds but other times only a portion. Investors need to know the percentage that is being paid to the founder and what percentage is going to the actual earnings of the business.
The most common use for a cap table is when there are new investments that are not publicly offered. There could be several reasons for this. One reason could be an investment that is considered a "straddle". Straddles are when two or more companies are making an investment that is based on the same business idea. Another reason for creating a pre-money valuation is when an organization is being formed and requires funds for its operating expenses. The company will issue a non-issue priced stock as an initial public offering and then finance the startup costs.
Startup companies typically have only a few shareholders. In order to determine the value of these small investors, a pre-investment Cap Table template can be implemented. When the shares of these early investors are issued, they will receive a small amount of "wet money" which represents the total of their capital when they invested. This will take care of any potential losses from the startup company and will give the new owners their initial capital back.