What is a Capitalization Table?
When you’re running a startup, one of the last things on your mind is attending to certain corporate formalities. If you’re going to be seeking outside investment, you probably have a business plan and your corporate Articles and Bylaws ready to present to a potential investor.
However, one of the first things a prospective investor will likely ask to see is your company’s capitalization table, and you should be ready to produce it immediately. If you haven’t documented every equity issuance to the penny, and don’t have ready access to all the details concerning every shareholder, your investor may not wait around for you to gather the information. And even if they do, a hastily assembled, incomplete, or inaccurate capitalization table represents a hefty red flag for investors.
In contrast, being able to present an accurate and complete capitalization table will help instill confidence in your investors and will impress upon them that you are organized and in charge of your business. Thus, it is essential to create and maintain a reliable and accurate capitalization table from the moment you start your business.
A capitalization table sets forth all of the equity and investment debt issued by your company, including common equity, preferred equity, and convertible debt. It should set forth each shareholder’s equity stake, the consideration paid for his or her shares, voting and liquidity priority rights, employee equity, incentive plans, options, and warrants.
Having a complete capitalization table at your fingertips will enable you to quickly answer investor questions, and get the funding you need. With that in mind, be certain to take a bit of time out from your busy day to create a clean and accurate capitalization table, and maintain it as your business grows.