A capitalization table, or cap table for short, is a snapshot of who holds what securities of a company at a given time.
What’s in a cap table?
The level of detail in a cap table can vary depending on what information a company is willing to share and what the cap table viewer requires. A simple cap table might show the aggregate number of a company’s securities issued and outstanding, broken down by type of security. A detailed cap table might show the number of a company’s securities held by each stakeholder, each stakeholder’s percentage of economic ownership of the company, and each stakeholder’s percentage of voting control over the company.
Why is a cap table important?
Cap tables inform significant company decisions, so a company needs to keep its cap table accurate and updated. Companies use cap tables to determine how much equity to award to employees, how much equity to sell to investors, and which investors are needed to approve significant corporate actions. Investors use cap tables to determine their economic ownership and voting control in companies.
During fundraising, a company and its investors will use a spreadsheet model based on the company’s cap table, known as a pro forma cap table or simply a “pro forma,” to forecast how new investments will change the ownership and voting rights in the company. In mergers and acquisitions, a company will build a spreadsheet model based on its cap table, known as a “waterfall,” to determine how the company will allocate transaction proceeds to its stakeholders.