How your cap table story impacts fundraising

Posted by  Rajesh Gopi   on July 26 2020

Telling a good story is paramount to getting people to join you on your startup journey. Similar to how the founder’s background, product, vision, and team tell a story, a cap table is a critical component of any startup that must align with the overall story being told.

 

Telling your cap table story is particularly important for investors who want to see how you've managed your most valuable resource (equity) to date and project into the future what their ownership stake and upside could be if they invest. 

 

We speak with startup founders all the time and most of the cap tables don’t tell the story for how the company got to where they are today and where the company is heading to tomorrow. 

 

Here’s a simplified version of a relatively simple cap table:



Common + Options

Shares

       

Founder 1

2.5M

       

Founder 2

2.5M

       

Employee 1

1%

       

Advisor 2

0.25%

       

Options

486112

       
           
           

Preferred

Instrument

Invested

Cap

Disc.

Notes

Investor 1

Pre-SAFE

$5,000

$750,000

20%

 

Investor 2

Pre-SAFE

$25,000

$750,000

20%

 

Accelerator 1

Post SAFE

$150,000

$1,500,000

10%

 

Accelerator 2

Post SAFE

$150,000

$2,142,857

0%

 

Investor 3

Note

$100,000

$5,000,000

15%

4% intr due in 2 yrs

Investor 4

Note

$125,000

$7,500,000

0%

8% intr due in 2 yrs



The problem with this kind of representation is that it only grabs a snapshot in time. There is no story. There is little past and no future.

 

Humans are hard-wired to understand stories as they move through time. At TWO12, we help startup founders tell their cap table story and the evolution of their company's equity structure in chronological order. Using TWO12 you can cleanly explain to investors (as well as accountants, auditors, and law firms) how your cap table got to where it is today. See the bar that runs across the top in the image below. 

 

 

Capital is often raised at different caps and at different discounts and interest rates. Until these instruments convert to preferred shares, there is no clarity on how much ownership the founders, investors, and early employees will end up with. Raising additional capital at different terms continues to muddy the cap table and makes it more uncertain for all participants.

 

With our Dilution Modeling app that's bundled into the product, you'll be able to simulate multiple scenarios and project where it could go in the future. 

 

 

Find us at https://two12.co or email us at hello@two12.co to sign up for a 14-day trial and learn how we can help you tell your cap table story.

 

Topics: Knowledge, cap table, startup