Are you considering raising funds, issuing shares, or even allotting share creator company warrant (BSPCE)? You must absolutely have an up-to-date capitalization table!

A real tool for distribution and management of shareholding, the capitalization table, or cap table, is constantly evolving. While its management is relatively simple during the distribution of capital between the co-founders, it becomes more complex over the operations and the entry of new shareholders.

However, the management of the capitalization table must be mastered. Indeed, investors attach great importance to it in the context of a capital raising. An obsolete or erroneous capitalization table can have a deterrent effect and drive away financial partners. In addition, the table plays a crucial role in the internal management of your joint-stock company and strategic decision-making.

What is a capitalization table? 

The cap table, also called "table de capi", is a summary of the distribution of the company's capital among the various shareholders.

The cap table is thus a snapshot at time T of the company's shareholding and capital structure.

The capitalization table is not frozen in time. It indeed evolves at the pace of funding rounds (or "table rounds") but also other operations. For example, the departure of an employee beneficiary of BSPCE can have an impact on the share pool and consequently on the distribution of share capital.

In the context of a fundraising, the capitalization table is generally requested by potential investors. Indeed, it is a key element of the due diligence stage. The table allows the financiers to have a global vision of the current distribution of the company's share capital, and to evaluate the impact of their investment on it, if applicable.

What does the cap table contain? 

In practice, the cap table contains the following information:

• The different title holders: managers, employees, investors... ;
• The nature of the titles held by each holder: ordinary shares, preferred shares, free shares, financial securities (BSPCE, BSA...);
• The amount invested in capital;
• The number of titles held by each holder and the percentage of capital that this represents.

In addition, the table may present the distribution of capital in two ways:

• The share capital in "fully diluted": the table shows the company's capital and all the financial securities giving access to the capital, after their conversion into shares;
• The share capital in "non-fully diluted": the table shows only the capital, at time T, without the securities having yet been exercised (converted into shares).

Why is it important to keep a capitalization table? 

Your capitalization table must be regularly updated. Indeed, it is an important organizational management tool for the start-up and a valuable source of information for potential investors.

1. To record every entry and exit of capital

The cap table allows the company to record all these operations and to follow the evolution of the capital structure (increase in share capital, reduction of capital...).

An updated table is essential to effectively manage the legal and financial management of the company. Your teams thus have the complete history of the company's financial assets and all the up-to-date information to work under the best conditions.

In addition, the capitalization table significantly influences the company's decision-making process. Indeed, it gives managers a complete representation of the distribution of capital and allows them to perform simulations to evaluate the impact of planned operations (fundraising, employee share ownership plan...) on it and anticipate the risk of dilution.

2. To attract investors

The cap table is essential for raising funds. Indeed, an innovative project, a convincing business plan, and pitch deck are not enough to win over investors. They pay close attention to the startup's capitalization table.

The reason for this is that this register is a relevant indicator of the company's management. An outdated, inaccurate, or inequitable or unbalanced capitalization table can discourage business angels from injecting funds into your company.

For example, investors are reluctant to invest in the following situations:

• A too significant dilution of the founders' pool: the combined founders hold less than 50% of the company's capital;
  Note: the capitalization table is considered balanced when the founding shareholders hold at least 50% of the share capital.
• Dead equity: a founding partner holding a significant share of the capital is no longer involved in the company;
• Too many shareholders;
• No BSPCE allocation plan to motivate and retain employees.

The capitalization table should thus be carefully considered and maintained to stimulate investment opportunities.

3. To enhance the company's credibility

As previously stated, the capitalization table is a major indicator of how the company is organized and managed. Thus, a balanced cap table, diligently maintained and regularly updated, is a sign of seriousness in the eyes of third parties (investors, banks...).

It helps to increase the overall credibility of the startup and to establish a relationship of trust with financial partners.

You have understood, updating the capitalization table is a relatively time-consuming, even complex operation. However, its maintenance is absolutely necessary, both to ensure the internal management of the company and to obtain financing and manage relations with financial partners.

***

With Equify, you can quickly and simultaneously update your capitalization table as well as your register of title movements and find the history of all your operations, regardless of the date.