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The capital table is a part of the larger game-plan of raising money for a business. In many ways, the capital table is an outgrowth or reinforcement of the fundraising plan for a new business. The capital table is typically used when a company has raised a substantial amount of money from a previous fundraising efforts. This plan can either be an extension of the original fundraising efforts or a new way to secure the money that was raised in the first place.
As the name indicates, the capital table is a table where a group of people contribute their various personal assets as capital. If the fundraisers have been successful, then the personal assets of these people become part of the company capital. The group of contributors will typically consist of owners, investors, and employees. It is sometimes difficult to find people who have the same ideas as the business owner. In this case, it is often necessary to recruit experienced business consultants or attorneys to serve as the lead person in the capital table.
To be prepared for such a scenario, the business must first determine what kind of people will be served by the capital table. Who should be interested in contributing to a startup business? Will those with money have a "pull" if they have access to capital as well? What skill sets do you need to fill the chairs at the table? Are you looking for venture capital, angel investors, or wealthy individual friends and family? Once you know the composition of the potential participants, you can start thinking about the structure of the capital table.
The capital table is generally a round table with seats for twelve people. Business partners and venture capitalists sit on the left side of the circle, with angel investors and other team members on the right. There may also be one vendor or two vendors on each end of the table. If more than twelve people are helping a startup company finance, then the capital table may be divided up into smaller groups with seats based on who has access to capital.
When the table is broken down into smaller groups, each person knows what they can offer and what it will cost them to participate in capital funding. This is helpful because everyone has a clear idea of the price that they will charge for the capital that they are seeking. Even though they might not be able to agree on a price right now, they will be able to once they have access to capital.
Once the table is established, each entrepreneur can explain their unique circumstances and present their offers to the capital table. Sometimes it helps to include an explanation of why they are able to provide capital to a startup. Often times, someone will have special access to a unique resource or technology that can benefit the company. They may also be able to leverage their wealth or business contacts to provide funding as well.
Viable deals will be presented to the capital table depending on the needs of the startups. If there is capital growth or expansion opportunities, the entrepreneur should be able to show how they intend to utilize the capital for their benefit. They should also be able to give a current or hypothetical example of how they plan to make use of the capital funding to expand their business. This can be a great way to make sure that investors do not feel like they are taking advantage of the startup.
Investors who are unfamiliar with the capital table should not feel intimidated. It can be a beneficial and creative way to gain access to capital for new and emerging businesses. The capital table is something that is designed to make it easy for potential investors to make an informed decision. There are multiple entities involved, so it is best to make sure that one party is clearly defined. This will help to make it easier to establish the deal.
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