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Venture Deals: Chapter 7: The Capitalization Table

Now is your chance to show off their proficiency with a spreadsheet. Even if you know what a cap table is, we’ll give you a simple way to calculate the summary level ownership categories with a calculator (or a simple spreadsheet model). 

Now that we’ve worked through all of the specific clauses in the term sheet, let’s go through how a typical capitalization table (cap table) works. A term sheet will almost always contain a summary cap table, which we describe in this chapter. You, your prospective investors, or occasionally your lawyers will generate a more detailed cap table.

The cap table summarizes who owns what part of the company before and after the financing. This is one area that some founders, especially those who have not been exposed in the past to cap table math, are often uncomfortable with. It’s extremely important for founders to understand exactly who owns what part of a company and what the implications are in a potential funding round.

If you get confused about how much you might own after the pre-money, post-money math and option pool (issued and unissued) calculation runs through the cap table, along with being perplexed on how to actually calculate price per share in a complicated financing, this is the chapter for you.

August 3rd, 2011 by     Categories: Venture Deals     Tags: ,