Building a successful startup requires a great product, a firm vision, a motivated team, and a little bit of luck. It’s no simple task!
Assuming you have the major points in place, success and failure can often depend as much on the details as it does the bigger picture. One of those details is a major one: keeping your cap table up to date and accurate as your company grows.
If you’ve managed to scale your startup through the seed phase and plan to go after multiple funding rounds, you know the value of keeping a flexible and accurate cap table.
Unfortunately, with many startups on their journey to Unicorn land, that cap table is likely sitting on a hard drive in an Excel spreadsheet. If that is the case, then it’s time to consider how to level up your cap table management.
We know that a cap table is a simple and convenient tool to track who owns what percentage of your company. Managing that concept with an Excel spreadsheet may have worked when you first founded your startup. But that was back when you simply had to split up your company’s equity between yourself and a few founders.
Those Excel sheets might have even worked through your first round of funding. However, cap tables in spreadsheets quickly become unmanageable as your ownership structure grows in complexity.
As you inch toward higher Series funding rounds A, B, C, etc., cap tables held in spreadsheets become a liability to both your growing company and investors.
As a founder, you need to make sound decisions when considering new financing, and you must be able to quickly run various scenario modeling analysis based on different valuations and different round sizes. These scenarios must be accurate and accessible to your internal team and your stakeholders.
Exposing yourself to the possible human error that comes with an Excel sheet puts you at incredible risk. Similarly, the further you move in rounds of funding, the harder investors will scrutinize your cap table. Serious investors simply cannot afford to depend on Excel spreadsheets that require complicated manual inputs.
Imagine you have future plans of expanding internationally and setting up subsidiaries of your company in different countries. Now you have multiple cap tables and are operating in jurisdictions where the equity structures might look quite different than the ones you are used to.
Are you confident your spreadsheet can tackle the compliance structures of various regions?
What about an acquisition? It will take a tremendous amount of effort to get that deal over the line, and moving that deal through to sign and close typically comes down to the deal economics — represented by your cap table.
Similar to your other investors, rollover shareholders may not feel comfortable signing on the dotted line based solely on an Excel spreadsheet. And no one wants to push back a sign or close date because of some mechanical error found last minute in your Excel cap table.
What about when trying to attract and retain the key talent you need to take your company to the next level. These high-level team players will request option plans equaling a specific value percentage of your company. You will need to know if you have enough options in your pool to cover this request and how this grant will impact the value of existing shares.
The same goes for employees who decide to leave. If employees leave before vesting or fully vesting their options, your cap table will need to be updated to reflect the impact on your ownership structure. Can your excel spreadsheet handle that?
What about an IPO? The holy-grail of Unicorn status.
When you become the next unicorn, your financials and cap table will be subject to an immense amount of scrutiny.
If a manual cap table was not sufficient for your Series B investors, it certainly will not satisfy the likes of an investment bank or the regulatory bodies that manage your listing on the exchange. And this is not mentioning the complexity involved with cashing out certain existing shareholders or converting your existing options into public options. Your cap table should be able to account for future scenarios.
Scenario and exit modeling are fundamental aspects of a modern cap table management strategy. They allow founders and CFOs to predict the future and manage unexpected events. Because the only thing constant when managing a cap table is change.
All of the things discussed above and many more continually impact the value of existing shares.
Your cap table must keep track of all this movement in precise detail. It’s easy to see how in the majority of cases, an Excel spreadsheet has too many limitations.
To handle the complexity and constant change of a high-growth company your cap table needs to be transformed into a digital tool that is as flexible and dynamic as your company — with the ability to scale accordingly. That is where cap table automation software comes into play.
Ledgy is currently used by leading high-growth companies to handle their cap table management and equity-related activities. This includes everything from managing employee incentive plans: ESOPs & PSOPs to scenario modeling their next funding rounds, and also their compliance.
Through a range of equity management features, Ledgy turns your cap table into a flexible digital asset that scales with ease.
Imagine a transaction-based cap table that updates in real-time, is always accurate, and leaves no room for error. Our technology allows you to systemize your underlying equity data while give you a broad range of tools that put this data to work in growing your company.
With Ledgy, you can build accurate scenarios for funding rounds and exits with liquidation preferences and waterfall analysis. Mapping out current, historic and future valuations is effortless, and the intuitive, user-friendly interface is appreciated by all stakeholders.
Managing the relevant stakeholders that are tied to each phase of your funding journey is a central component of Ledgy’s platform. You can grant stakeholder-specific access to various dashboards — whether that is an employee, a potential investor, executive advisor, etc.
Investors, for example are invited into their own dashboard with access levels you control. And with Employee Scenarios, one of our newest features, you are able to show your team members the future potential of their returns.
Running a tech startup is hard enough, which is why the most successful companies use their cap table as a lever for growth. Having an always accurate, single source of truth for all your reporting, projections, and investors allows you to focus on the many other aspects of growing your company.
Would you like to find out how unicorns use Ledgy to handle equity? Schedule an in-depth demo to see it in action and get all your questions answered.