Deborah McGargle, an experienced entrepreneur, investor and business mentor, will be delivering a workshop on planning the financial future of your business at Tech North’s Founders’ Network Summit on 2nd March 2017. Here she gives you a taster of what you can expect to learn.
The capitalization table (cap table for short) is the only document that properly records ownership of your company. Now you might say, ‘well Companies House has that record too,’ except – you heard it here first – it doesn’t.
Companies House only holds a record of who has been granted shares in the capital of the company at any given time (or maybe a debenture or two if you’ve taken a loan). It does not show option holders, convertible notes or option pools; this information is only available in the cap table and therefore it’s your duty as a founder to make sure the cap table is well maintained.
We musn’t just think of the cap table as a dormant ledger that we wheel out every so often to remember who to send a company update to. It’s so much more than that. In fact, many would go as far as to say the cap table is the most valuable tool in the fundraising process, and here’s why…
The cap table allows you to run every investment and hiring-with-equity scenario that affects your business. You can figure out how much to raise, how much to set aside for employees, what you can afford to give to advisors and how the valuation of your business influences these decisions.
Cap tables are really not something to be frightened of, and yet time after time it’s the one thing that scares founders half to death. Maybe it’s because nobody has explained valuations, option pools and dilution to them properly, so they don’t know how to use them effectively or what any of this stuff means. This is such an easy fix.
The solution to cap table phobia would be for someone to create a formulated industry standard that could guide founders through this step by step. Here’s the good news – I’m currently working on it, but for now, you’ll have to rely on a face-to-face workshop and plain old Excel.