How to create a cap table, a quick guide

Jason Atkins
Co-founder & President
March 17, 2023

If you landed on this article, you're likely in the process of creating your first cap table or your current one is not working out for you.

At Cake, our team has seen thousands of cap tables in our collective lifetimes and every day we see more. We know how important a cap table is in every stage of a business and, managed properly, how powerful it is in helping startups raise funds, retain the best talents, grow, and succeed.

And this is why we've made it our mission to educate and empower startups to create their cap tables, remove the complexities, and manage it in the simplest and most efficient way possible.

This article covers:

What is a cap table
How are cap tables used
What details are in a cap table
How to create a cap table
How to manage a growing cap table

What is a cap table

Simply put, a cap table (or capitalization table) is a document or a system that details who owns how much of a company.

It keeps a record of shareholder details, type of shares, percentage of ownership, and other equity-based transactions.

It's a living, breathing document that's likely to change very often — any time you give equity to employees, sell shares, bring on new investors in a funding round, or distribute equity in another way, your cap table will need to be updated.

In other words, it's ideal that you treat your cap table as a single source of truth where stakeholders can find up-to-date information about their equity, ownership percentage, the value of their ownership, and its dilution over time. Any financial information necessary to compute a shareholder's ownership should be included in your cap table.

How are cap tables used

Cap tables are used to help make business and financial decisions. If your cap table is kept organized and up-to-date, it should only take a quick glance to get a clear picture of the company's equity and holdings.

These are some of the most common ways companies use their cap tables and the information they contain.

Raising capital

An up-to-date cap table will play a crucial role in any fundraising you do for your company. Potential investors will want to see a cap table so they can understand the equity position of the company before making an investment. It helps them better understand the company's valuation, how their investment will impact other investors, where they sit in the liquidity rank, and other important considerations.

Compensating employees

It's becoming more and more common for companies (especially startups) to offer their employees equity ownership as part of their compensation package. Your cap table helps track and manage employee shares and options, terms, vesting schedules, and more.

Tax and regulation compliance

While your cap table isn't a legal document, it can be used to ensure that legal documents related to taxes and compliance with local regulations are correct and up to date. Accountants, lawyers, and other partners will use your cap table to do their work.

Liquidity events

In the event of a merger, acquisition, sale, or other liquidity event, your cap table outlines how much each shareholder gets from the proceeds, and in what order. A comprehensive and up-to-date cap table can help avoid lawsuits or disagreements that can arise from cash distribution after a liquidity event.

What details are in a cap table

A cap table helps you keep track of who owns what so you can make important business decisions that are affected by that information.

Basic, pre-investment cap table

At its most basic, a cap table needs to show:

The total number of shares and securities (including common shares, preferred shares, warrants, options, convertible notes, etc.)
Existing shareholders's names, how many shares they own, and the prices they paid for their shares
Number of outstanding shares
A basic cap table with minimal equity holders might be just a spreadsheet with the names of all shareholders and a one-line description of the shares they own. Pretty simple, right?

Spoiler alert: It gets complex quite fast!

When a cap table is no longer basic

Once you start adding angel investors, venture capital, employee stock option plans, and complex financial transactions to your cap table, things may not be that simple anymore.

A more complex cap table can track more details about the company's ownership and finances, including:

  • Common stock
  • Preferred stock
  • Restricted stock
  • Pre-money options
  • Post-money options, including any reserved shares for an option pool
  • ESOP information (including vested and unvested shares)
  • Authorized shares
  • Unissued shares
  • Sources of funding and amounts raised
  • Convertible debt raised
  • IPO information
  • Mergers, acquisitions, and other transactions

How to create a capitalization table

First things first, take a moment to celebrate. 🎉

Creating your first cap table is a milestone. It means you are taking the first steps into establishing a startup and/or pursuing a dream! You're in for a ride!

Now on to the actual cap table construction.

There are 3 ways to create cap tables, depending on what stage your business is at:

1. Create your cap table from scratch

Most startup founders create their first cap table from scratch. This is because, initially, it only holds a small amount of data and an Excel sheet can do the job.

Moreover, knowing the ins and outs of your cap table from its earliest version is a good context to have as you build on top of it. Starting your cap table (or starting anything, really!) from scratch is usually a good learning experience.

To build your own cap table, start with the names of equity holders on the Y-axis and the types of equity on the X-axis. Other financial information you include in your cap table will vary, depending on your company's equity position and what you need from your cap table.

With this method, you'll need to manually update your cap table any time new funding is added, when new employees join the option pool, when existing shareholders exit the company, or any other time that equity changes hands.

The faster your company grows, the faster your cap table evolves too.

2. Customise a cap table template

The internet is full of sample cap table templates! There are many different options (both paid and free), which makes a template an attractive choice for those who lack the knowledge to start a cap table from scratch, or to update one to meet a company's growing requirements.

Using a cap table template is as simple as downloading one and filing it up. However, keep in mind that you might not find a cap table template that fits your exact requirements.

It might also take a lot of time searching, comparing what's available, and choosing the right one that's closest to what you need.

In other words, expect to heavily customise an excel template downloaded from the internet.

In any case, whether you start a cap table from scratch or you utilise an existing template, you will reach a stage of growth where you need to rely on a software and/or a professional to set up and manage your cap table.

Past your first round of funding, it's ideal to use a cap management software that will automate some of the time-consuming manual computations and processes, and keep your cap table clean and up-to-date.

3. Use a cap table management software

Many companies choose to keep their cap table in a spreadsheet. It's a fast, easy option, but there are several disadvantages to using a spreadsheet as a cap table management tool.

First, a spreadsheet can't track and check your cap table data in real time. It will be a logistical challenge to keep all versions of your cap table up to date.

That's what makes cap table software such a great option, even for small and early-stage companies.

If you have an existing cap table in a spreadsheet, you can import it into a software. If you're starting from scratch, most software will help guide you through the set up process. At Cake, we have onboarding specialists to help you set up your cap table and learn how to manage it.

Building your cap table is only the first step. As you've read in this article, updating, maintaining, and sharing your cap table comes with ongoing challenges. By using a software, you can build a cap table that scales with you as your company grows.

Cap tables, the Cake way

When comparing the pros and cons, the best choice is clear: cap table software is fast, easy, scalable, and provides a host of other benefits, including real-time updates, legal compliance, document storage, and more. Most cap table software comes wth a cost, which can be quite a lot for a bootstrapped startup.

So when you choose your cap table management software, go with an option that provides all those benefits and an affordable freemium model that makes it accessible to companies at any stage of growth, like Cake!

With Cake, setting up your cap table is easy as pie. Simply upload your existing cap table or let our team help you create one from scratch. Your cloud-based cap table will handle tracking equity transactions and complex calculations while storing portfolio information, documents, and company communication in a transparent dashboard that all stakeholders (including important partners like accountants and lawyers) can access.

Cake combines accreditation, automation, and professional advice to bring equity management best practices to founders everywhere — plus it's one of the most affordable software solutions available today.

As a founder, you have enough to manage, so leave your cap table to Cake. Get started in just minutes, for free.

This blog is designed and intended to provide general information in summary form on general topics. The material may not apply to all jurisdictions. The contents do not constitute legal, financial or tax advice. The contents is not intended to be a substitute for such advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.

Jason Atkins
Co-founder & President

Co-founder of Cake Equity, husband, father of two, dog owner, surfer, thought leader, likes to talk about anything equity, capital raising, climate, startups, making the most of life, and ageing backwards.

Achievements and qualifications:

  • Bachelor of Commerce in Accounting and Finance
  • Certified Practising Accountant (CPA)
  • Board Member of FinTech QLD
  • Mentor at Startmate, River City Labs, Stone & Chalk
  • AirTree Explorer

Equity management doesn't have to be complex. Start your free trial with Cake today.