In essence, a capitalization table demonstrates the snapshot of an ownership structure of an enterprise. The cap table is widely used by entrepreneurs, venture capitalists, and investment bankers to model and to analyze such events as ownership dilution, issuing employee stock options, or issuing new securities. After several rounds of financing a company, its cap table may be highly complex.
As a cap table becomes more complex, the ownership percentages indicated on the cap table can correlate less and less to the actual percentage of proceeds distributed to shareholders upon a liquidity event. Some industry commentators have called the difference between actual ownership percentage on the cap table and a shareholder's percentage of exit proceeds "accounting ownership" (actual ownership percentage on the cap table) vs. "economic ownership" (percentage of proceeds available to equity). This leads to the concept of a "waterfall" or "waterfall analysis." A waterfall analysis details the exact payouts to every shareholder on a company's cap table based on a specific amount of proceeds available to equity in a particular liquidity scenario. Since a company often does not know if, when, or how it will achieve a liquidity event, waterfall analysis typically covers a range of liquidity assumptions.
Liquidation preference charts
Liquidation preference charts extend the Waterfall analysis, showing the economic outcome available to investors at all valuations across a ranges of outcomes. Rather than focussing on a specific point, or a discrete set of points.
These can be tricky to create using standard spreadsheet tools, due to the nature of calculation which is an algorithm. So a specific software program or online tool is often preferred.
- How to make a cap table
- What is a cap table and how to prepare one
- Capography Helps Entrepreneurs Manage Their Cap Table Without The Excel Headache
- Sample capitalization table on a spreadsheet
- Cap table of Everpix
- An online tool for managing your startup's cap table in the cloud