A cap table- short name for “capitalization table”- is a spreadsheet with an overview of who owns a portion of equity of a company and how this equity is distributed among shareholders. When entrepreneurs are looking for financing rounds, the cap table is one of the main files that investors will check to assess whether the venture has a healthy distribution of equity or not. Generally, investors prefer cap tables where all or at least the vast majority of shareholders will contribute to value creation in the future. In some cases, entrepreneurs with appealing and promising business ideas miss funding opportunities due to the so-called broken cap tables. This refers to an inadequate distribution of equity among shareholders or inacceptable terms and conditions, which generates misalignment of interests or interferes with an efficient business management. As a result, the startup losses the ability to raise funds or requires going through a painful restructuring process.
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Guidelines to avoid broken cap tables
By Eric Weber on 20 September 2021