What is a cap table? (Capitalization table)

A cap table is a tool that clearly shows the ownership structure of a company, i.e. who owns what shares of the company and to what extent. A cap table often includes details of shareholders' stakes, number of shares, as well as information on options and other potential dilution effects. Cap tables are particularly common among startups and growth companies where the ownership structure can change rapidly in the event of a takeover, emissions and various funding rounds.  

What does a cap table contain? 

A cap table usually contains information about: 

• How ownership is distributed, with a list of shareholders, such as founders, business angels and investors.
• How many shares there are and how these are distributed among the shareholders.

When is a cap table needed? 

A cap table is an important document for potential investors to review factors such as the company's ownership structure and how future funding rounds or dilution may affect their investment. Cap tables are particularly important for startups and growth companies, where the ownership structure can change frequently.

Although cap tables are mainly used when a company is seeking capital, they are a good tool to create transparency and strengthen the trust of stakeholders in the company, as they provide a clear picture of the company's current ownership structure.

Read more: How trading in unlisted shares works

Frequently asked questions

Why is a cap table important for startups?

A cap table is important for startups because the ownership structure often changes quickly and many times during the company's growth. An accurate and well-maintained cap table from the start makes it easier to manage future investment rounds and ownership changes, as well as providing a clear picture of who owns what. 

How does a cap table affect investors?

Well-managed cap tables give a professional impression and signal that the company has its capital structure in order. Investors appreciate companies that have clear and structured cap tables, as they show an accurate picture of the ownership share and potential dilution effects. 

How often should a cap table be updated? 

A cap table should be updated whenever there is a new financial transaction, such as a new share issue, sale of shares or if an owner is bought out by other owners.

What is meant by broken cap table?

One broken cap table (broken cap table) refers to a situation where the ownership structure of a company has become complex, problematic or unattractive to potential investors. It usually means that the ownership is divided in a way that could create problems in future investment rounds or when selling the company. This can make it difficult to attract new investors or create conflicts between existing owners.

Here are some common causes of a broken cap table:

 

1. Excessive dilution:

   If the company has undertaken many rounds of financing, existing shareholders, especially the founders, may have been heavily diluted. This may reduce their incentive to continue working for the success of the company, which investors see as a risk.

2. Too many small shareholders:

   If a company has issued shares to many small shareholders (e.g. early investors, advisors or employees), this can create a fragmented ownership structure that is difficult to manage and complicates decision-making.

3. Many types of shares and options:

   A cap table with many different classes of shares (A, B, C shares, preference shares, etc.) and options can be confusing. This can complicate future funding rounds and create conflicts if different classes of shares have different rights.

4. Disproportionate ownership:

   If early investors or smaller shareholders have a disproportionately large shareholding compared to their contribution to the company, this can create difficulties for future investments or sales. It is important that those who work actively in a company in leading positions have a high level of ownership in the company so that they have an incentive to do a good job.

A broken cap table can make the company appear high-risk and discourage potential investors. In such cases, the company may need to make adjustments, such as buying out some shareholders, simplifying the share structure or buying back options, to make its cap table more attractive and investable.