GCV Institute Presentation – How to Read a Cap Table

On Tuesday 17 May 2022, Neil Foster and I were delighted to present at the GCV Institute held at our offices in London. Neil's talk focused on deal terms in Corporate Venture Capital deals; mine was on cap tables. Here are some key take-aways from mine:

• What is a cap table?

A cap table – short for capitalisation table – is a summary of who owns what in a company. It can be high level or more detailed, listing each shareholder and their associated shareholdings.

• Some key terms to note:
  
  
  • Pre-Money Valuation: the value that the company and investors agree the company is worth before the investment round.
  • Post-Money Valuation: the Pre-Money Valuation plus money in.
  • Fully-Diluted Share Capital: this includes all outstanding shares, such as options, warrants, any available option plan reserve, SAFEs or convertible loan notes, amongst others. From an investor’s perspective, it preferable that as many ‘outstanding’ shares as possible are included in the fully diluted position. The more shares in the fully diluted cap table, the lower the share price as this is calculated by dividing the Pre-Money Valuation by the Fully Diluted Share Capital (as an investor, this means you get more shares for your money).
    
    
• Convertibles

The terms of a convertible note should be reviewed carefully in conjunction with a cap table in any round. An investor should take into account whether there is a discount on the round or a conversion cap, for example.

• Who has control?

You can tell by looking at a cap table whether any single shareholder or group of shareholders has a veto on any actions. If they do not vote, does it prevent the company from taking an action? An investor should think about adding reserved matters in the investment documentation if there are certain things that they want control over but do not necessarily have by virtue of their share percentage ownership.