Why Do Startups Have Cap Tables?
A cap table is simply a record of who owns equity in a company. This includes founders, employees, investors, and anyone else who has a financial stake in the company. Cap tables are important for startups because they help founders keep track of ownership percentages and dilution.
Dilution occurs when a founder sells equity in the company to an investor. This can happen in the form of a seed round, Series A, or any other type of investment. When this happens, the percentage of ownership that each founder has in the company decreases. For example, let's say that you and your co-founder each own 50% of your startup. If you then sell 20% of the company to an investor in a seed round, your ownership percentage would decrease to 40%. This is called "equity dilution."
Cap tables help startups keep track of how much equity has been sold and who owns what percentage of the company. This information is important for a number of reasons. First, it helps founders predict and prevent future dilution. Second, it's helpful for raising future rounds of funding. Investors will often want to see a cap table before they invest so that they can see how much ownership they would be getting for their money. Finally, cap tables can be used as a tool for managing employee equity compensation plans.
