If you are not familiar with the traditional financial markets or not a regular on Investopedia, you might be unfamiliar with the term.
A capitalization table is a spreadsheet or table that shows the equity capitalization for a company. A capitalization table is most commonly utilized for startups and early-stage businesses but all types of companies may use it as well. In general, the capitalization table is an intricate breakdown of a company's shareholders' equity.
The Cap Table is vital to make the right decisions that impact your capitalization and/or are colored by your capitalization. For example, if you are considering new financing, you need to be able to quickly run scenarios based on different pre-money valuations, different round sizes, different available option pool targets, etc.
Or, if you are recruiting a new COO and the candidate asks for options covering a certain percentage of the company, you need to be able to quickly determine whether you have sufficient shares available in your option pool, determine how dilutive the new grant will be to other holders and calculate the exact number of shares that represents the requested percentage. An accurate and well-organized cap table will empower you to make good decisions quickly.
The cap table is actually made of several legal documents and transactions. In short, you would find the following things in a cap table:
- Exercises of options
- Conversions of debt to equity
- Stock issuances
A more complex table may also include details on potential new funding sources, mergers and acquisitions, public offerings, or other hypothetical transactions.
Below you can take a look at the most basic example of a cap table: