Notes

Cap Table Management
How to handle cap table miscommunication is one of the biggest and most difficult managerial challenges you will face as a private investor. Managing your cap table effectively means understanding all the legal terms, the different regulations, fees and expenses that apply and which are negotiable. There is a lot of information available about how to manage your cap table and many investors find that learning about each individual point of entry, such as s asset base and s funding structure can take years.

To begin, your cap table is actually an legal document spelling out your start-up equity structure. Therefore, any mistakes in your cap table are serious errors in your company s official corporate ownership documentation. However, this does not mean you can't fix these mistakes legally - only that it does mean an incorrect cap table might cause major problems when hiring new employees or seeking capital. If you have several employees, have hired new investors, or have exchanged your stake in the company for some other asset it can be difficult to undo a bad cap table. Even if you have equity held by a corporation with shareholders, if the shareholders did not give their consent for your incorporation, they do not have a right to invest in the business and therefore the shares you hold are not yours.

Most investors are uncomfortable dealing with cap table management and it is true that it is a specialist area of finance. However, you cannot simply ignore the paperwork because it contains important information about your company. Shareholders have a right to know whether the funds you receive from equity grants are being used for the benefit of the company. If you fail to provide them with the necessary documentation, they may consider those funds as "free money" and will not consider your request for further information.

Cap table management is not only an issue regarding investment issues. Sometimes, the wrong kind of cap table management can lead to situations where you are not able to make money. One example is when a shareholder receives an amount of cash but wants to invest in a different company. In this situation, the shareholder may make the mistake of investing in a company that is significantly under capitalized which will result in him being left with no gain and possibly in negative cash positions.

Managing startup equity can be done in a number of ways. One way is to hire outside firms to handle the cap table management for you. This can be a particularly useful solution for new businesses that lack expertise in this area. However, this can also save time and money in the long run if you manage everything yourself. There are a number of resources available that can help you learn how to do this.

If you cannot afford to hire external specialists, you should at least be familiar with the basics of managing startup cap tables. You should be able to come up with a cap table plan that should include both long term as well as short term goals. You should also have a set date for when you would like your cap table to be ready for the first year. Finally, you should take a look at whether you want to make your own decisions on when the cap table should be ready to go live. This can save you time when you are dealing with external experts and it can make your own decisions less demanding and more efficient.

Your best bet when you want to learn how to cap table management is to use a spreadsheet that manages the investments that you make. One excellent spreadsheet for cap table management is called Carta. Carta is free and can be easily incorporated into Excel. The spreadsheet is quite robust and able to manage just about any cap table and portfolio management problem.

Managing startup equity is very important and you need to consider it as part of your investing strategy. Of course, managing the portfolio is just as important and when you are handling startup funding rounds as well as ongoing equity financing rounds, it will be even more important to keep track of and manage your portfolio in a well-organized manner. In order to do this effectively, you will want to use a cap table management tool. Check out some of the options for managing your investments and portfolio online.
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