One Cap table (Capitalisation Table) shows the ownership and shareholding structure of a company. It provides an overview of which individuals or institutions hold shares in the company and the size of their respective shareholdings.
This overview is particularly important for start-ups, as funding rounds and investment programmes can alter the ownership structure. Founders should therefore carefully document their ownership structure from the outset.
What information does a cap table contain?
Depending on how a start-up is financed, the capitalisation table contains different information. It shows not only the existing shareholdings but also possible future changes.
Typical ingredients include:
- Founders’ shares: Indicate which shareholdings the founders hold.
- Investor holdings: Document the investments made by business angels, venture capital funds and other investors.
- Number of shares: Indicates how many shares each shareholder holds.
- Participation rates: Show the percentage breakdown of the company’s capital.
- Employee shareholdings: Take into account any existing or planned share ownership schemes.
- Dilution: Shows how ownership stakes change as a result of new rounds of funding.
- Conversion rights: Indicate any potential future equity interests arising from convertible loans or similar forms of financing.
In addition, a start-up can also include voting rights or different classes of shares in the overview.
However, caution is advised when it comes to virtual employee share schemes (VSOP). This is because these do not normally constitute genuine shares in the company and should therefore be disclosed separately.
How does a cap table work? An example
Two founders each initially own 50 % of their start-up. They then wish to raise additional capital in order to further develop their product and attract new customers.
In return, an investor takes a stake in the company. In return, the start-up issues new shares.
The ownership structure is changing as follows:
| Parties involved | Before securing funding | Following the financing |
|---|---|---|
| Founder A | 50 % | 40 % |
| Founder B | 50 % | 40 % |
| Investor | 0 % | 20 % |
| Total | 100 % | 100 % |
Following the funding round, both founders now hold a smaller percentage stake in the company.
This effect is known as Dilution.
The number of shares they hold remains essentially the same. However, their percentage stake decreases because the company is issuing new shares.
Why is the capitalisation table important for start-ups?
As shareholdings may change as a company develops, founders should update their overview regularly.
This helps them keep track of things and better prepare for future funding rounds.
An up-to-date overview of shareholdings offers several advantages:
- It provides clarity regarding ownership structures.
- It makes it easier to prepare for funding rounds.
- It makes changes to the participation rates transparent.
- It helps to simulate future financing arrangements.
- It supports the planning of employee share schemes.
- It provides investors with a clear overview of the company’s structure.
A clear ownership structure plays a particularly important role, especially in discussions with potential investors. This is because ownership structures influence, amongst other things, investment decisions, voting rights and future financing strategies.
What does ‘fully diluted’ mean?
The term Fully Diluted provides a more comprehensive analysis of the shareholding structure. In doing so, the company takes into account not only existing shareholdings but also certain potential future shareholdings.
These may include, for example, options, shares set aside for employee share schemes, or conversion rights arising from financing instruments.
However, it must be clearly defined which instruments are included in the calculation. This is because not every shareholding programme automatically results in genuine shares in the company.
This approach is particularly helpful for founders, as it enables them to identify potential changes to their ownership stakes at an early stage.
When should a cap table be updated?
As a general rule, start-ups should review their shareholding structure whenever there is a change in ownership or capital structure.
Typical occasions include:
- The founding of the company
- The recruitment of new investors
- Capital increases
- The transfer of existing shares
- The introduction of participation programmes
- The conversion of financial instruments into shares in a company
It is also worth working through the figures for potential funding rounds at an early stage. This enables founders to better assess how new investments will affect their existing shareholdings.
How can innoWerft help with this?
innoWerft supports founders in understanding equity structures and preparing for funding rounds in a targeted manner. In addition, coaching and access to a network of investors help founders to further develop their funding strategies and make well-informed key investment decisions.
Frequently Asked Questions about the Cap Table
What does ‘cap table’ mean in German?
Cap Table stands for Capitalisation Table. It shows how the company’s shares are distributed amongst the individual shareholders.
What is the difference between a cap table and a list of shareholders?
The list of shareholders of a GmbH is a document required by law which, amongst other things, sets out the shareholders and their shares in the company.
A capitalisation table, on the other hand, is primarily used to provide an overview of the business and for financial planning. It may therefore contain additional information, such as options or potential future shareholdings.
What does ‘dilution’ mean in the context of a funding round?
Dilution occurs, for example, when a start-up issues new shares. This reduces the percentage stake held by existing shareholders, unless they purchase additional shares to compensate.
Should employee shareholdings be included in a cap table?
Yes, because shareholding schemes can influence the future ownership structure. However, a distinction must be made between actual company shares, options and virtual shareholdings.
innoWerft is an early-stage investor and accelerator based in Walldorf, supporting start-ups before or shortly after they are founded by providing capital, coaching and access to a network of investors and businesses to foster sustainable growth.
Would you like to take your start-up to the next level and find out more about innoWerft? Apply now for the Open Pitch.