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We talk to startup founders all the time, and one of their biggest struggles is wrapping their heads around what will happen with their capitalization table (cap table). Probably the most challenging concept to grasp is that new shares of stock get issued/created instead of transferred between founders and investors.
On a seed round of funding, say, a founder will not ‘yield’ or sell a percentage of their shares to investors; instead, the company will issue new shares, which causes the percentage distribution to change.
When new investors come in, shares don’t transfer hands: new shares are created instead.
The same math also applies to startup stock options. If you are a startup employee with a stock option pool, you have a fixed number of shares you own, and that number will not change. What might change is the total amount of stock that the company has issued, which effectively changes your percentage ownership.
When you combine that with convertible debt or multiple rounds of additional funding, it can be hard to grasp what will happen with your shares (and, therefore, your money).
So I’ve been working for the past few weeks on a cap table template that you can use as your company evolves. Please think of this page as the ultimate instruction manual to manage it. I’m not going to…
