The cap table: What is it and why do I need one?

What's a capitalisation table?

A capitalisation table (cap table or captable for short) details who has ownership in a company.

A good cap table clearly outlines who has shares, how many shares they have and the value of those shares.

It lists a company’s securities including shares, options and warrants, plus the prices paid by investors in return for any of those securities and details of dilution over time.

A cap table should also record vesting details - this is especially important for employee share option schemes.

Often, all of this critical info is contained in a spreadsheet. But as you'll soon discover, there's a far better way to maintain and update your cap table.

What's a pre-money cap table?

If you're talking to an investor, the chances are you'll hear the words 'pre-money' and 'post-money' when referring to a cap table.

It's pretty common for VCs and private investors to perform a pre-money valuation to determine the value of the company prior to investment.

And a post-money cap table?

Once the cash hits the bank, you can expect a post-money valuation which will determine the company's value after investment. 

Pre-money and post-money cap tables offer two different views of a company's worth, and both can be reflected in your cap table.

Why is a cap table important?

If you're wondering whether you need a cap table, the answer is yes. Here's why your cap table matters:

1. Your cap table tells a story

A cap table, in a way, becomes a reflection of how well (or not so well) a company is doing in terms of growth and overall value.

A cap table tells the story of your journey so far. As time goes on and more shareholders come on board, your company's cap table will evolve too. Investors want to see that journey.

2. For complete clarity

When kept clean and tidy, a cap table provides a clear view of company ownership.

That clarity can help decision-makers make strategic decisions - like how much equity to set aside for future employees or potential investors. Plus with total visibility, shareholders can understand how their shares might dilute over time.

3. For fundraising

Securing investment for your startup can be a game changer, so you want to make a great impression, right?

A clean and tidy cap table is a shining example of attention to detail and due diligence - that you’ve got your house in order.

For investors, looking at a company’s cap table is like peeking under the bonnet of a car to see whether it’s a worthwhile investment or more trouble than it’s worth!

Ultimately, investors want to see how big a slice they could get in return for their cash investment.

And whether the size of the prize is worth the risk. To do so, they need to understand the company’s ownership structure before putting any money down. And a cap table is a great place to start.

4. For compliance 

Different shareholders (particularly investors) often have different rights and privileges. A cap table should record whether a shareholder has voting rights and/or rights to dividends or other preferences.

That will determine who has a say in key commercial decisions. And what will happen following an exit or liquidation event - i.e. when shareholders can expect their returns to trickle back to them (AKA a waterfall).

A cap table can also play a key role in compliance checks ahead of any audits or funding rounds. And it's something that you can cross-reference with your shareholder register to ensure your records are accurate.

A shareholder register (AKA a register of members) is a legal requirement under the Companies Act. A cap table is not.

A shareholder register records all active and former owners of a company’s shares.

While it sounds similar, a shareholder register is not nearly as detailed as a cap table and there’s no requirement to include securities like convertible loan notes or warrants/

But directors are legally required to update HMRC of any material changes to the

company’s shareholder register.Among other things, your company is also required to file a confirmation statement every year - this is to tell Companies House that the information they have about your company's directors and shareholders is correct.

Do I have to share my cap table with investors?

No, you can keep your cap table confidential if you wish.

There's no legal obligation to share your company's cap table with anyone, that includes the Board of Directors, Companies House, employees and investors.

Arguably, all directors, investors and significant stakeholders should have access to your cap table. Potentially, any advisors, accountants or lawyers too. But whether employees should too is a hotly debated topic.

How to read a cap table

Every cap table will look different, but here's what you'll find in a (good) cap table:

• Name, address and contact details of each shareholder
• Authorised shares/options
• Outstanding shares/options
• The class and type of shares
• The nominal value of each share
• Details of any voting rights or rights to dividends
• Price per share
• Dilution details
• Any convertible loan notes, warrants or other securities.

As a general rule, if you come across a cap table that's not easy to read, it's not a great one.

Usually, in a cap table spreadsheet, you'll find shareholder names on the Y-axis and everything else on the X-axis, but there's no hard and fast rule.

How to create a cap table

Some founders are old-school and document everything including their cap table on paper. Not the sort of thing you want to misplace...

Other founders ask their lawyer or accountant to take care of their company's cap table for them, which could cost between £5-10k!

The most common way to create a cap table is in an Excel spreadsheet or a Google Sheet.

You can find examples and templates online of varying quality. Download our free Excel template, if you must (it's decent). But read on to find out why you shouldn't!