Notes

Startup Capitalization Tables: Summation of Capabilities
A Startup Cap Table is often used by early stage or start-up ventures, which identifies the ownership structure of the business. The startup cap table visually displays who owns what, how much each entity/individual owns and what value each stake is worth. It may also show how much cash is owned by each partner. The spreadsheet allows for flexibility as well as being easily customizable for any business structure. There are many different templates that can be found on various Internet sites.

Most startup cap tables list the current share prices and capital investments of each partner. However, a simple cap table template only lists the total number of shares owned. Therefore, it does not provide information on the effect of changing amounts of ownership (e.g., selling or buying out another partner). A simple cap table also does not show any possible dilution of ownership (e.g., two partners could own 100% of the shares).

Startup businesses are generally self-funded with little or no outside capital. In most cases, there is usually not yet a profit and loss statement provided. As a result, a company's capitalization varies greatly from year to year. For this reason, the valuation of a company's equity can never be known until after it has raised its first venture capital investment. To overcome this problem, many startups use a cap management company to ensure that they do not ever reach their funding cap.

Startup cap tables are extremely important to new businesses because they provide accurate information about share ownership and capitalization trends. Many investors use startup cap tables as part of a due diligence tool. This essentially means that they perform due diligence on startups by researching available companies and identifying key metrics that investors would look for in a successful business. The purpose of this research is to determine if the business has the potential to be profitable enough to obtain traditional loans. This is where the term "due diligence" comes into play.

A startup cap table template provides founders with accurate historical data about ownership structure and shares. It will also help them calculate the correct share price based on historical data. Due to the highly dependent nature of start ups, determining the correct price for a share of ownership can often be complicated. A cap table can greatly simplify this process.

Another scenario that can require the need for a cap table is when the founders have a large amount of shares that have become convertible. In these situations, the founders typically retain the majority share of ownership while also providing the corporation with a small minority. The larger percentage of ownership is used as an equity investment. Because of this situation, a startup cap table is invaluable.

There are many other scenarios that may require startup cap tables, and due diligence is the only way to accurately determine these scenarios. This is not to say that if there was no need for this template, these scenarios would never arise. However, due diligence can prevent the founders from potentially wasting time and money by focusing on companies that do not have the best business model for their needs. These templates also assist in determining the correct price per share by taking into consideration the value of shares held by the founders. This information is helpful in determining if a company has the right business to make it to its second year, or if the first year was a major success.

Many startup capitalization tables can be found online. The advantage of this approach is that the business owners can access these cap tables directly from the Internet without having to leave their desk. This provides for immediate action that often times can influence a large decision. In addition, the results can be provided immediately on the website itself, saving the founder and staff the time and expense of having to travel to meetings. With the right information, a good initial startup capitalization table can help guide entrepreneurs in achieving their goals.
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