Cap Table

A company’s cap table is a document (typically a spreadsheet, especially among young companies) that expresses exactly who owns what equity in the company (including percentage and equity type, like Preferred Stock vs. Common Stock), as well as tracking any convertible debt, warrants, or other claims on the company.

A company’s cap table is a document (typically a spreadsheet, especially among young companies) that expresses exactly who owns what equity in the company (including percentage and equity type, like Preferred Stock vs. Common Stock), as well as tracking any convertible debt, warrants, or other claims on the company.

While it can start out quite simple (for example, two co-founders each contributing an equal initial investment and sharing the equity 50/50), once employee options and fundraising begin, things get complicated quite quickly. (Here’s a useful piece from Venture Hacks describing just one of the ways things can get messy along the way.)

Because of the various “liquidation preference” associated with different types of investments (like preferred stock and convertible debt), the percentage ownership stated in the cap table may vary considerably from the actual slices of the pie each party gets in the event of a liquidity event (like an acquisition). The difference between the percentage ownership stated in the cap table and the actual distribution of proceeds from a sale is referred to as the difference between “accounting ownership” (what the cap table says) and “economic ownership” (how the actual proceeds from a sale are ultimately distributed).

In most crowdfunding investment scenarios you won’t directly review the cap table, but depending on which round you’re involved in and the stage of the investment, the term may come up in discussions with other prospective investors, and the cap table is the ultimate “source of truth” about how the proceeds will get distributed in the event of a sale of the company.

There are strong similarities between a cap table in startup financing and the capital stack seen among commercial real estate investments (including referring to the actual mechanics of how proceeds are distributed as “the waterfall”).