Getting your startup off on the right footing means there are a whole host of things that need putting in place. While the early stages of such a venture are the beginning of an exciting chapter it can also be an extremely hectic one.
This means you need to take advantage of effective business tools in order to get maximum leverage for your operation. With that in mind, one of the very first things that must be established is an effective Capitalization Table. This is also known as a cap table and is a tool that can be used to excellent equity management effect.
One thing is for sure, with everything else that is going on, early-stage companies need a secure, easy-access, and easy-to-use cap table management system.
To help you along, we will shortly give details on what cap tables are all about and why getting things right from the very beginning can give your startup that all-important business edge.
From there it will be onto details of a tried and trusted cap table management solution that once implemented means: Automation, No Excel, and No Excessive Paperwork.
The result will ease your administration workload and allow for such things as fast updating and the ability to input ‘on-the-fly’ calculations. That ability alone will be of tremendous benefit when it comes to enhancing forecasting as well as allowing you to present clear, concise, and relevant facts and figures to all potential investors.
As will be seen, cap table implementation must be seen as a major early priority. So much so that it should be put in place as one of the initial steps when forming a startup.
What is a cap table?
A cap table has to be seen as a crucial part of your company’s structure and its valuation. It includes listings of all shareholders and the corresponding stock assigned to them. A well-structured cap table will also allow companies to continually add data as it grows and becomes more established.
While traditionally cap tables have been kept in a spreadsheet or ledger form this is now being seen as admin heavy and at times inadequate. Another issue comes in the form of complexity.
A cap table can begin in a very simple format but it is unlikely to remain that way. How your business grows and the more it grows means a completed cap table can end up being very complicated.
This is leading to a step-change in the smart early-stage company community. Those who want to concentrate on what they do best – i.e. developing products or services for their target market are finding that using automated cap table systems is the way of the future.
While we will delve deeper, ease of management, effective prompts, and reduced paperwork are just some of the benefits that come with implementing an automated cap table.
Why is a cap table so important?
Many startups do not realize just how important it is to implement an effective cap table system right from the very earliest stages of their venture. This is understandable because in its most simple form a cap table can be very straightforward.
However, the beginnings of a cap table will certainly not be the end of it! Your cap table and its ongoing management will grow in complexity as your company grows in stature.
Here are 2 key factors as to why a cap table has to be seen as a key company asset and why easy cap table management for early-stage companies should be implemented from the very beginning.
As will be seen, it is a highly-effective tool in the decision-making process, and when it comes to funding stages as well as potential investor persuasion.
A key factor in the decision-making process
During the early stages of a startup’s life and as it matures there will be many crucial decisions to be made. A cap table clearly shows founders and investors who ‘own’ their particular number of shares in the company.
With this cap table clarity, everyone involved knows how the stock is distributed and what each person’s ‘voting’ power is. This will help all concerned understand how to vote on certain decisions and should avoid conflicts or bad business decisions being made. This knowledge can also aid successful business practices.
There is no doubt that reducing conflicts is a precursor to cooperation and business growth. It is also clear that the decision-making process will affect the ultimate direction a startup takes.
Money matters!
There are no two ways about it, a well-constructed cap table represents money. Investments in early-stage companies can range from low 5-figures right up to high 7-figures (and some!) This means that as your startup grows in stature and in profit the stock could easily double or triple its value.
When it gets to this stage just a small cap table error can mean the difference of sums in the region of those 5- to 7-figures mentioned.
Some may counter this by claiming that in the beginning, ownership coupled with monetary value is not so critical. This is stated because, in reality, the startup has accomplished very little to date. But founders and employees should put that out of their heads.
Here are 7 reasons why:
- Current investors will have the ability to see who has what type of control. This data can then be used to forecast their own position, and with that, their potential profit.
- Those holding stock will have real-time access to understand the value of their shares.
- Potential investors can use the available information to evaluate any levels of control and leverage given for the money invested.
- A reliable historical insight will be accessible. This can provide valuable ‘timeline’ information when the startup goes into new rounds of fundraising.
- It will help founders quickly determine and decide what percentage of their company they have to offer to any new (or potential) investors.
- Flexible, ‘on-the-fly’ projections. Any potential investor worth their salt will appreciate a well-presented, clear, and easy-to-read cap table.
Just as importantly, when founders are presenting their case for additional investment the ability to input and receive instant projection data can go a long way to help (persuade) a potential investor’s decision-making.
- Should an audit be required a well-kept and well-developed cap table will accurately present the history and holdings of your company.
What’s the solution?
With all of the above and more in mind, it should tell early-stage companies that putting in place an easy cap table management system has to be the way to go. This really cannot be treated as something to address later, nor should it be put on the back-burner. The straight fact is that the sooner a startup develops a cap table strategy the better.
The other issue is that any cap table approach you take must have the ability to grow as your company does. All startups should have the firm belief that their business roadmap is one of success, growth, and prosperity.
While that is no easy achievement and there are many challenges to overcome it can be achieved. This is despite such things as the competition faced in your chosen business sector and your ability to effectively manage all necessary funding stages.
A sensible and solid business plan, astute recruitment, and a clear target audience should all be part of your plans. But there is no doubt that implementing an easy-to-manage cap table system will give you the edge. Not only from the off but as you continue to grow.
WOWS Global has the solution. Our highly experienced, professionally qualified team of industry experts are fully focussed on giving early-stage startups the advantage through best business practices.
Automate your cap table
One such advantage comes through the WOWS Global automated digital cap table management system. We use the latest technology to seamlessly integrate and simplify your equity management.
Your company access will be highly secure and comes with pre-populated cap tables, seamless reporting, and the ability to share information with your stakeholders and to issue as well as monitor stock awards.
Our automated cap table management tool offers increased transparency for stakeholders, allows you to run deal scenarios with speed and accuracy, and gives the ability to calculate dilution impact.
WOWS Global fully understands the business pressures that founders of a new company have to deal with. The WOWS cap table management system is designed to take a good proportion of that pressure off.
It allows you to achieve such things as effective, structured building and management of your cap table and ESOP, you will also have the ability to create an organized liquidity channel for employees and investors.
There is one other benefit that has to be taken very seriously. Allowing WOWS Global to partner with you will give you the ability to find investors and the potential to raise capital by taking advantage of the powerful WOWS network.
If you are an early-stage company that is looking for the best possible start in life and are looking for that all-important competitive edge, please do not hesitate to get in touch with WOWS Global to discuss matters further.