Growing businesses need external funding for lots of reasons, and protecting themselves through a downturn is one of them. Having funding when others don’t can make a huge difference to your medium term success.
How can you save time and money by being a share registry ninja? Let’s see.
What is a share registry
A share registry is a database that contains information about a company's shareholders and the shares they own. It's usually maintained by a third-party registrar, who is responsible for recording changes to the registry, such as when shares are bought or sold. However, for startup
The primary function of a share registry is to provide accurate information about a company's ownership structure. This information is important for a number of reasons. For example, it allows the company to communicate with its shareholders, issue dividends, and hold shareholder meetings.
Types of share registries
There are two main types of share registries: physical and electronic.
Physical share registries
In the past, share registries were maintained using physical certificates, which were issued to shareholders as proof of ownership. However, this system was cumbersome and prone to fraud, as certificates could be lost or stolen.
Electronic share registries
Today, most share registries are electronic, which means that share ownership is recorded digitally rather than on paper. This system is more secure and efficient than physical registries, as it allows for faster and more accurate processing of transactions.
How does a share registry work
When a company issues shares, it must record the details of each share in its share registry. This includes the name and address of the shareholder, the number of shares issued, and the date of issue.
As shares are bought and sold, the share registry is updated to reflect the changes in ownership. This allows the company to keep track of its shareholders and to communicate with them regarding any important matters, such as shareholder meetings, dividend payments, and corporate actions.
In addition to maintaining the share registry, companies may also engage the services of a share registry provider. Share registry providers offer a range of services, such as managing the share registry, processing share transactions, and providing shareholder communication services.
Share registry management
Service provider or software?
We're glad you asked. Publicly traded companies with a large number of shareholders typically use a share registry service to manage their share register and other administrative tasks. Early stage startups and smaller private companies may find these service providers too costly and unnecessary.
Many startups initially manage their share registers using a spreadsheet. As the business grows and they acquire more shareholders, using a spreadsheet for share registers can become problematic and tedious to manage. Errors due to manual inputs, formulas, and version control can be a huge source of headache in the long run.
Especially as the startup ecosystem begin seeing more creative ways to raise capital, resulting to a surge in the number of startup investors. It is therefore important for startup founders to ensure that all share register details are accurate, compliant, and properly updated at all times.
Make share registry management a piece of Cake
Cake takes the guesswork out of managing your share registry. We are on a mission to empower startup founders around the world through powerful tools that will help them raise capital, gain the confidence of investors, and share equity to their teams.
Cake allows you to implement an automated platform for your raise, saving you weeks. Our platform handles most of the settlement and share registry communications, sparing you many hours of tedious administration and speeding up your settlement.
We've seen it many times.. investors regularly sign in the wrong spot, lose emails in their inbox, can’t access your document signing software and much, much more. And then you normally have to manually update your registry, issue share certificates, and update ASIC.
Cake smashes through this in super quick time! And all documents and holdings are saved for you and your investors in the Cake platform. See how easy it is to import your share registry into Cake and never look back to your spreadsheet era.
Share registry best practices
Make sure you get your fully diluted share registry right
There are so many ways to get this wrong. And finding out in the middle of your raise that there is an error can delay your raise for weeks or longer as documents are rectified, or worse, can destroy your investor confidence altogether.
Check if you need a share split to be able to issue new capital. This is very common for early stage funding. You need to have enough shares issued for the new investors to get their shares, in whole numbers, and you keep the right % ownership as per your plan.
When building your share registry for your raise, you must consider the terms of prior round shares, any convertible notes, and any options that have been issued. These all need to be included, and converted to shares as per their conversion terms so that you have what is termed your fully diluted share registry. The fully diluted share registry is the basis for the pre-money valuation too. This way your new investors know what percentage of the company they will own for their shares.
Make sure ASIC is up to date too! You don’t want investors thinking the company is sloppy or that it is hiding something, when they undertake a simple ASIC search. You must have this done first as this is a red flag and slows down or potentially even kills deals.
Communicate clearly with investors on the terms of your raise
You need to do some investment market research (like, what are investors expecting right now, should I do a priced equity round, or a convertible note?), get your registry and legal agreements ready, and then make it clear to investors via a Term Sheet. One way to look at this is, you wouldn’t buy a car without knowing exactly what model you are buying, would you? And you’d want to know the VIN, and the sellers’ details and all the technical information. Raising capital is the same, you can’t expect investors to take your offer seriously without clear terms, which can be summarised in a Term Sheet.
The Term Sheet needs to be very accurate and well planned, including company details, current and proposed share registry details, asset type, voting and dividend rights, directorships and more.
Of course, you may need to negotiate these terms later in the raise process, but at least you are in the game. Going to market without clear terms is like selling a car to someone without letting them know which year model it is.
Get your current investors on-board
Review and agree all your raise plans in advance. This agreement will take the form of a resolution whereby the relevant directors and members will approve the raise plan in a way that adheres to your constitution and shareholders agreement. You need to get this done at the start so you don’t get stuck negotiating and changing things halfway through. Plus, your investors can be your biggest supporters in your raise and may provide the first capital to help you get raise on its way (remember, often under a shareholders agreement, you will actually need to offer the shares to the existing shareholders first, under the same proposed terms, before any new investor).
Also, if you have an employee share scheme it would be a great idea to get your team on board. They will want to know how this impacts them. And this will help you to maintain the motivation and engagement towards your common goals of building value in the company.
Systemise and automate as much as you can
Capital raises can take 6 months or more. One of the key challenges in this process is navigating the myriad of legal, accounting and regulatory tasks. There are hundreds of individual communications in a typical raise.
Using standardised terms sheet, shareholders agreements, and subscription agreements can save weeks as every investor and their lawyer don’t need to spend time learning and arguing about your terms.This can save you weeks too! If you get stuck in a back and forth on terms with lawyers, it might be time to turn to standardisation to keep things simple!
Don’t forget, your current investors and team can be your best supporters in tough times! Make sure that you communicate with them, and ask for help. Use your employee stock option plan to motivate and engage your team, and ask your investors for their support to ensure you have the runway to survive and hopefully thrive!
As always, the Cake Team is here to help. Just book in a chat at the intercom below and one of our customer success experts will be responding at the other end.
This article 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.