The Cap table software is undeniably essential. There are many reasons why you need it. Since your cap table will be vital for your negotiations, you should have everything accurately updated. With an organized cap table right from the start of your business, you will successfully evade some costly mistakes while raising capital.
Listed Here Are Some Explanations Why You Will Need A Cap Table Software
Raise Money on Better Terms
Multiple investment rounds are essential for steady company growth. Therefore, you need to source investment opportunities from multiple investors as much as possible. In addition to that, while doing so, you will affect the shareholders’ ownership and your ownership as well. A well-managed cap table enables you to negotiate your terms better. Thus, it is always essential to make sure that the cap table is accurate and updated.
You should also keep in mind that investors would always request for the cap table during negotiations. Therefore, if you lack a cap table or have a disorganized one, you will turn off your potential investors and miss great opportunities. With an unattractive cap table, you might have a rough time trying to raise money, or fail to raise any. A well-organized cap table example, on the other side, helps secure better deals.
You should also remember to set up the cap table well right from the start. Waiting until you land some investment opportunities might be costly since you may fail to include some vital details. Although this might not look like a problem at the start, a mere mistake in the cap table example can consequently make you lose your company ownership.
For instance, you can offer some equity to a few employees and fail to include the information in the cap table. With such inaccurate information, you will not present the right ownership percentage or share value to an investor during negotiations. Shockingly, you might hand over a huge portion of your company without realizing that you are jeopardizing your ownership.
Issuing Options
Usually, stock options vary over time. Therefore, you need to track down all vested shares for all option grants. Sounds like a walk in the park. Surprisingly, it is not. Sometimes, an option holder can leave the company earlier than expected, and as a result, their vested options are returned to the company. The reason is that for employee equity plans your company offers, the employees have limited timelines to exercise their options before they are given back to the company.
Worse, off, you would also have to keep pulses with the various transfers, repurchases, restricted stock, and early exercises as well. That way, you will realize that the equity compensation offers for employees should be included in the cap table.
Hiring Key Employees
If you are looking to recruit and retain great employees for a startup, equity compensation is a great incentive to consider. You should understand how to come up with an exceptional compensation package. In case the company is acquired, individuals getting the equity (particularly the executives) would want to confirm their payout at the different exit values. Hence, you need an updated and clear cap table.
Currently, most companies are becoming more transparent with their employees, executives, and investors about the information in their cap tables. This approach will provide accurate details on equity sharing to any interested individuals.
Companies that have the right cap table example and items are more likely to maintain high levels of motivation among employees, even while facing adversity. With the right information and tools, your cap tables can be a great asset when it comes to human resources.
A cap table is much more convenient than a simple spreadsheet. It enables employees, executives, and investors to access their holdings. Also, keep in mind that employees would stick with the company for a longer period once they see an increment in value.
Staying Compliant
The tax compliance and regulation bit is yet another vital part of the cap table. With a cap table on a spreadsheet, you will have a hard time trying to figure out the appropriate information to add, and the exact part to add it on the tax forms. The IRS has many stringent rules that guide equity compensation for companies. Therefore, making any mistake can cost you and the employee’s hefty penalties. A cap table will save you such excruciating stress, as you will be able to comply with the rules easily.
Selling The Company
At some point, many companies have to be sold or go public. The cap table would, therefore, be important, as it will provide information on equity compensation. Further, if you would want to get money during an acquisition, the lawyers will use the cap table to negotiate effectively. The lawyers will obviously rely on an advanced cap table that is more effective than a spreadsheet. They would want everything compact in one place with information, including options agreements, sale agreements, company transactions, shareholder agreements, and various valuations throughout the year.
Disorganized excel spreadsheet will make things difficult for lawyers to determine the right ownership, and any erroneous or mistaken details may lead to legal disputes. It would even get worse if you would want to sell the company. You may also fail to get the amount you expected once you exit or sell the company. Thus, it is important to use reliable and updated cap table software to evade problems when exiting.
