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Designing a Phantom Option Plan for an NBFC
A capitalisation table, or a cap table, is a record of a company's ownership of securities (e.g. common or preference shares, convertible instruments, warrants etc.). Simply put, a cap table shows 'who owns what' and 'what proportion of the company a shareholder owns'.
For a new startup, the cap table can be as simple as:
A cap table is an important document for any business. It helps founders manage ownership of their stakeholders and also help derive the price of the equity instruments they own in the company.
Aside from founders, a cap table is also crucial for various startup stakeholders, such as investors and employees. Having a proper cap table helps investors forecast the potential dilution and how the startup's ownership is structured, building investors' confidence. It also allows employees to understand the value of their stock options.
As a new startup founder, it might be daunting when creating your first-ever cap table as you don't know where to begin. You can create a cap table in 2 ways: using a spreadsheet template or using a cap table management software.
Managing a cap table on spreadsheets can become challenging as your startup grows. Spreadsheets require constant manual updates, making them prone to errors and version control issues. As multiple investors, employees, and instruments get added, data tracking becomes increasingly complex, and small mistakes can lead to significant discrepancies during due diligence or funding rounds.
Digitizing your cap table through cap table management software ensures accuracy, transparency, and easier collaboration among stakeholders.
Read more about why managing cap tables on spreadsheets is hard.
Team Qapita recommends this simple framework to use when you are creating a cap table!
A well-structured cap table gives founders, investors, and employees a clear view of the company’s ownership. It serves as a snapshot of who owns what and how each round of funding affects those holdings. Before you start building your own, it helps to understand what a basic cap table structure typically includes.
While this might sound like a simple thing, knowing who your shareholders are is an important first step when creating a cap table. Since an investor may invest in more than one funding round, it is crucial to record the names correctly to prevent confusion or duplicates.
Simple mistakes such as the misspelling of names may not be noticeable until transaction due diligence. Cleaning up such errors would be costly and could have been prevented easily.
The easiest way to know who the shareholders are would be to check the electronic register of members (EROM) or to cross-check with share certificates issued.
The listing of shareholders is dependent on the target audience. Some cap tables may list with founders at the top, followed by executives and employees, whereas some may prefer to list by descending order of ownership with the largest shareholders at the top.
Always ensure shareholders' names are recorded accurately for every update to prevent errors!
The most common types of equity instruments issued with funding would be ordinary and preference shares. It is important to understand the difference between the types of equity instruments as they have different effects on the dilution of ownership.
Other than ordinary and preference shares, there are also options, warrants and convertible notes such as KISS and SAFE, which can dilute the equity ownership.
Dilution often occurs when more shares are issued during funding rounds, meaning that current shareholders may get a smaller piece of the pie as more shareholders are introduced.
A cap table will usually show the ownership percentage on both a non-diluted and fully diluted basis. Fully-diluted ownership represents the ownership percentage when all options and convertibles are taken into account with issued shares.
To avoid any unexpected dilution, it is necessary to calculate the full dilution to capture as many shares as possible. It is also required to perform a waterfall calculation to evaluate the distribution of net proceeds from a liquidation event, such as a successful exit.
Remember to consider all equity instruments when calculating ownership on a fully diluted basis!
This framework that Team Qapita has provided can be modified according to the company's requirements and include more information than we have provided.
When creating a cap table, you also have to be wary of committing common mistakes such as recording inaccurate information and share allocation errors. While the mistakes may be simple, their effects will be amplified after several funding rounds, and fixing these mistakes may incur high costs.
As the cap table becomes more complex due to the number of equity instruments and stakeholders involved, it may be wise to move beyond excel spreadsheets since they only capture static data and must be manually updated frequently.
To avoid undesirable consequences, founders should consider digitizing their cap tables through equity management software.
Struggling to create a cap table from scratch or migrate from spreadsheets? Qapita simplifies the process with automated equity management software. Build accurate ownership records instantly, handle dilutions seamlessly, and get investor-ready cap tables in minutes. Book a free demo with Qapita today.
A cap table itself is not a legal document but rather a record or summary of ownership. However, it must reflect information from legal documents such as share certificates, stock option agreements, or investment contracts. Its accuracy is legally significant, especially during audits, funding rounds, or exits.
Common mistakes include inaccurate shareholder details, misclassification of equity instruments, failing to account for dilution, and not updating the table after each transaction. These errors compound over time, leading to discrepancies that can harm investor trust and cause delays in due diligence.
A good cap table should be clear, consistent, and scalable. List all shareholders accurately, categorize equity instruments properly, include pre- and post-dilution percentages, and maintain full transparency on convertible instruments and stock options. It’s best to structure it using a standardized format or dedicated cap table software.
Qapita helps startups and private companies manage their cap tables efficiently through its digital equity management platform. It automates ownership tracking, reduces manual errors, and provides real-time insights into shareholder data. With Qapita, you can seamlessly manage equity instruments, model future funding scenarios, and ensure full transparency for investors and employees.
