What is a cap table? | Equity 101 lesson 2 - YouTube

I mean when I first started out,  I might have thought a cap table  

was a table full of hats. Now that I’m deeper  into my career and knowing what I know now,  

if I found out that a company had a messy  cap table or one that wasn’t put together,  

that would really scare me away. Knowing  that I’m on the cap table of the company  

lets me understand that they’re not going to  forget about me when it’s time to cash in.

Your company just gave you some equity and  you want to know how it works. To do that,  

let’s dive in and take a look at  what exactly your company is doing  

when they bring you on board as  an owner. My name is DeRonnie,  

and in this lesson, we’re going to teach you all  the basics you need to know about cap tables.

When your company gave you equity, they wrote  your name down in an internal document called  

a cap table. Think of this like a giant  spreadsheet with a bunch of complex formulas  

and equations in it. It’s keeping track of  a whole bunch of stuff. And it’s extremely  

important that the company adds you to their cap  table. Because the cap table keeps the record of  

when you’re going to receive your shares, not to  mention, how many shares you’re going to get and  

how you’re going to get paid if the company  sells, goes public, or what have you.

So how does a cap table affect you? How does  it work to protect and ensure your ownership?  

If you’re working for a venture-backed  startup, then your company is funding itself  

and its operations through money from investors.  And when a company raises money from investors,  

they typically give those investors a  percentage or shares of the company.

Now, there’s a bunch of different criteria  that come along with this transaction.  

And one of those criteria is that the  investors will require their company  

to reserve a certain percentage of their  business specifically for employees like you.  

That’s called an employee stock option pool  or option pool. And when your company gives  

you shares, that’s where the shares are  coming from—that option pool right there.

The reason your company does this—and the  reason investors typically require it—is  

to help them recruit talented people. After  all, if an employee has shares in the company,  

they’re more likely to work hard  to make the company successful.  

They’re also more likely to stay at the  company for a longer period of time.

But here’s the thing: Not all equity is created  equal. There are different types of equity  

that people can own. And each of them comes  with different sets of rights, preferences,  

and tax liabilities. For example, investors,  employees, and advisors will often be given  

different types of equity from each other—meaning  all their shares have different little details  

that the company has to keep track of. They might  have different timelines for receiving shares,  

or they might get paid out differently if  the company gets bought or goes public.  

We’re going to talk all about the various  types of equity in the next few lessons.

But for now, what you need to know is this:  As the company grows, it might have hundreds,  

even thousands, of employees, investors,  advisors, what have you. And all of these  

people might have different types of equity,  with different rights, preferences, timelines,  

et cetera. You can imagine that’s a lot to keep  track of. And that’s why you have a cap table

At its most basic, a cap table is just  a list of all the securities or shares  

in a company and a record of who owns  what. It keeps track of all kinds of  

different stuff like vesting schedules,  fair market values, exercise dates and more.

Now, if you’re a founder, it’s extremely  important to keep this cap table organized.  

And not just for the obvious reasons that you want  to know what percentage of the company people own.  

The other reason is because when your company is  funded by investors, there are usually a bunch  

of specific actions that you can’t take without  the approval of certain types of shareholders.

For example, let’s say your business is chugging  along and you need to raise another round of  

funding. You might not actually be able to do  that without getting majority approval from both  

your Series A and B preferred shareholders,  and the majority of your seed shareholders.

Pretty confusing, right? If you  don’t have any organized way of  

knowing what types of equity  each of your shareholders has,  

then you’re going to have a pretty hard time  getting the approval you need to raise more money.

But that’s not all. There’s also the fact  that one person or entity might have invested  

in your company multiple times, meaning  that even though they’re an individual,  

they actually own several different  types of shares in your company.  

So how do voting rights work for that person? And  how do they get paid out if the company sells?

The job of a cap table is to organize all  of this. Depending on a company’s stage,  

this cap table might be managed by the CFO,  corporate controller, company’s law firms,  

or even the founder themselves. We’re about  to jump in with Iris and watch her whole  

journey as she receives equity for  the first time. And what’s important  

to keep in mind is that without the cap table,  none of this stuff would even be possible.

So: You know what a cap table is.  Now let’s ride along with Iris,  

as she receives her very first equity grant.