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  • Medina Macias posted an update 6 months ago

    A simple cap table is useful and advantageous for:

    *raising financing: By making a simple cap table, you get an instant overview of your entire business. Thus, you’ll have a much better understanding of what shareholdings can be available to you and/or prospective partners. In particular, this will make it easier to work out whether or not you’re making money from your investments. This also gives you the ability to accurately calculate your returns on equity. This works particularly well if you know that you hold a large portion (more than 50%) of the company, and therefore would not be doing so well with shares sold through an IPO.

    *boosting your cash flow: Using a simple cap table allows you to quickly identify potential areas for additional funding. By selling stocks in an IPO, you could easily raise the money needed to fund future growth, whatever the case may be. However, it can also be used to quickly reduce the costs related to liquidity, such as with stock options. By only selling stock options, rather than exercising options on shares, you can dramatically reduce your financial risk associated with the business.

    startups boosting the attractiveness of your shares to institutional investors: A simple cap table allows you to quickly determine the value of shares of a business, as well as the value of the overall market. This allows you to determine whether or not they are undervalued, overvalued, or just right for you, as an investor. This can have a significant impact on how you view the attractiveness of the company’s shares relative to other investments. Additionally, by using this information to aid in determining the price of the company’s stock, it can help you determine whether or not to pursue more aggressive investment strategies, such as leveraged buyouts.

    *boosting your cash flow while preserving your float: A simple cap table will allow you to quickly identify holders of warrants and option exercise clauses. By selling all of these stock holders, you can reduce your liquidity exposure. This will allow you to continue to fund your business at low prices, while preserving a portion of your original investment. However, you should always consider that the proceeds from selling these securities will need to be reinvested into the business to avoid dilution.

    Of course, one of the biggest pros to implementing a simple cap table software is the easy way it eliminates the tedious work involved in valuing a stock manually. While startups is certainly an advantage, there are also some disadvantages you should be aware of before jumping on the bandwagon. These include:

    * Dilution: The sale of all outstanding shares by your start-up may cause dilution of your ownership interest. You may not realize this at first, as the new shares will begin to trade on major exchanges immediately. However, over time, this trend can cause you a substantial loss. In particular, if you sell all of your shares at once, you may not be able to receive the full value of the stockholder’s vote, even if your new financing method allows for the spread. If you do not believe this is an issue, think about whether you would feel comfortable selling all of your shares at once if your company faced bankruptcy or other major problems.

    * Fear of missed opportunities: As an investor, you have likely encountered instances where a company’s financial situation has changed dramatically, without the knowledge or approval of the shareholders. startups of the worst cases of this occurred to Enron, whose stock price dropped more than 90 percent during the early stages of their business. This was largely due to the fact that investors did not have the option of selling their ownership shares. While Enron avoided bankruptcy as a result of investor negligence, other companies have not been so lucky. For startups , it is essential that you keep a close eye on market activity to avoid holding shares of a company that are on the verge of going bankrupt.