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Rasmal Ventures' Guide: Navigating Your Cap Table with a Template
A Journey Through the Evolution of Your Cap Table
Introduction:
As you guide your startup through growth, one document you'll become very familiar with is the capitalization table, or cap table. It's not just a collection of numbers—it's a dynamic story of how ownership, investments, and company value evolve as your startup scales. In this article, we'll take you through the key stages of this journey, using a practical example. For a more detailed understanding, we’ve attached a Cap Table Template for you to explore the steps discussed in this article. In addition, the template can be wiped clean of the transactions content and used for your own startup.
Founding Stage: Building the Foundation
In the early days, the ownership structure of your startup is straightforward. The founders receive all the initial shares, representing 100% of the company. Usually, the jurisdiction in which you incorporate your startup lets you set the total number of shares. So for example, if the company is incorporated with 200,000 shares and Founder 1 and Founder 2 are equal partners, then they each receive 100,000 shares.
Total Shares Issued: 200,000
Ownership: Each founder holds 50% of the company.
The math is simple: divide the number of shares each founder holds by the total shares to get their ownership percentage. But remember, as your startup grows, so does the pie.
Seed 1 Round: The First Slice of the Pie
Now, let's bring in your first investor. As a consequence of the Seed 1 round, new capital enters the company, requiring the creation of new shares. Suppose a Seed Investor contributes $50,000 at a $1,200,000 pre-money valuation. How do you determine the number of shares to issue?
Current Share Price: Pre-Money Valuation / Total Number of Shares = $6
Number of Shares Issued: New Investment / Share Price = 8,333 Shares
Total Shares Post-Investment: 208,333 Shares
The founders still own 200,000 shares, but the total number of shares has increased, leading to a decrease in their ownership percentage—this is dilution. (A note on dilution: sometimes it is perceived as a negative thing because your % goes down. But tell yourself that in parallel to your % going down, your capital increased, so mathematically you have exactly the same value as you had before… dilution is not in itself a bad thing.)
Seed 2 Round: A Bigger Slice for Everyone
As more investors come on board, dilution continues. In the Seed 2 round, an existing investor adds $3,000 for another 500 shares (he/she wanted to keep the same %, so had to contribute his/her pro-rata of the round in order to subscribe the necessary shares for the % to remain the same), and a new investor contributes $72,000.
New Shares Issued: 12,500
Total Shares Post-Investment: 220,833
With each new round of investment, the founders’ ownership percentage decreases. However, the capital infusion ideally increases the company’s overall value, making this trade-off worthwhile, as we have explained above.
SAFE Financing: Now We’re Cooking
At this stage, the startup receives funding without issuing immediate shares. Instead, the investor receives a right to equity in the future, which happens at the next equity financing round, like Series A.
For example, Investor A contributes $400,000 via a pre-money SAFE at a valuation cap of $10 million, with no discount.
Conversion Price: $10 million / 220,333 Shares = $45.39 per share
Notional Shares reserved for the SAFE Investor: $400,000 / $45.39 = 8,813 shares
Note that these are called “notional shares” because it is not certain the SAFE will convert at its cap. A SAFE converts either at its cap or at the valuation of the next equity round, whichever is lower. We assume a good scenario where the next equity round valuation is higher than the cap, so we can calculate the SAFE Investor’s notional stake, as if conversion had occurred. This is an academic exercise however, because when the SAFE converts, it is because yet new money came into the company in the form of equity, impacting the notional % of the SAFE Investor pre-conversion.
Series A Round: The Big Leap
In Series A, Investor B invests $800,000 at a $13 million pre-money valuation.
Series A Price: $13M / 220,333 Shares = $59 per share
Number of Shares Issued: 84,936
Total Shares Post-Investment: Founders' Shares + Seed Investors’ Shares + SAFE Investor's now converted Shares + Series A Investor's Shares = 314,603 shares
With larger rounds like Series A, the impact of dilution becomes more pronounced. The founders’ slice of the pie shrinks, but the value of their shares increases as the company’s valuation grows with each investment round. Generally, in large rounds like Series A, founders should expect ~20% dilution in exchange for enough funds to create significant value.
Conclusion:
Keeping an accurate historic cap table at all times (which shows all the steps in your past and present financing rounds), and understanding every step of your cap table, are absolutely vital. Potential investors expect you to have it, and to be able to explain it. There are tools such as Carta to help you keep an accurate cap table. But in the beginning, an excel template such as this one is all you need. And remember, as you raise more capital, finding the right balance between dilution and increasing company value is key. Remember, the goal is to grow the pie so that even a smaller slice is worth much more.
