As any startup begins to raise funding from outside investors, keeping accurate and up-to-date records of the ownership stakes in the company becomes critically important. This record of who owns what percentage of the company is known as the capitalization table, or “cap table” for short. Proper cap table management is key to maintaining strong investor relations.
Understanding Ownership Stakes
The cap table provides a clear snapshot of how much of the company each investor, founder, and employee owns. Keeping this table updated as new funding comes in or stock options vest is necessary for all stakeholders to understand how ownership is allocated. Failure to keep records straight can lead to disputes down the road over who truly has what percentage of equity in the growing business.
Complying with Regulations
Publicly traded companies must comply with strict financial disclosure regulations. For privately held startups, updated cap table records are still important should the company one day go public or be acquired. Investors will expect clean books and documentation of the original investment deals. Inaccurate cap tables could potentially land the startup in legal trouble during a future liquidity event.
Communicating with Investors
Part of maintaining good investor relations is providing updates on company performance and ensuring shareholders that their interests are represented. An up-to-date cap table allows the startup to accurately report to investors on the ownership dilution from new funding rounds. It also prevents disputes over the validity of an investor’s stake in the company. Transparent cap table management builds long-term trust with shareholders.
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