Managing Cap Table & Valuations
Understanding the Cap Table
Source: Carta – What is a cap table? A founder’s guide
Why This Matters
A cap table is a critical tool for founders, investors, and executives to understand who owns what in a startup. It tracks equity distribution, changes over time, and helps plan fundraising rounds, manage dilution, and prepare for investor due diligence.
Key Takeaways
- Ownership Clarity: Lists all shareholders, their shares, and ownership percentage.
- Equity Types: Includes common stock, preferred stock, stock options, warrants, and convertible instruments like SAFEs.
- Share Classes: Differentiates rights such as voting and liquidation preferences (e.g., Class A vs. Series A Preferred).
- Transaction History: Records fundraising rounds, option grants, exercises, and secondary sales.
- Valuations & Dilution: Shows pre- and post-money valuations, 409A appraisals, share price, and potential dilution scenarios.
- Exit Planning: Models shareholder payouts in events like IPOs or acquisitions.
Actionable Steps
- Start Early: Build a basic cap table even in the earliest stages to track founders and key stakeholders.
- Use a Template or Software: Excel can work initially, but as complexity grows, adopt software like Carta for accuracy and scenario modeling.
- Regularly Update: Reflect funding rounds, option exercises, and new share classes to maintain clarity and prevent errors.
- Plan for Dilution: Model how new fundraising impacts ownership and communicate clearly with stakeholders.
- Prepare for Investors: Keep the cap table ready for due diligence and fundraising conversations.
Understanding SAFEs and Priced Rounds
Source: Y Combinator How Startup Fundraising Works | Startup School
Why You Must Watch This
This video breaks down the fundamentals of startup fundraising and debunks common myths that trip up founders. It’s a practical guide to what raising money actually looks like — from when (and if) you should raise, to the misconceptions about control, speed, and rejection.
Key Takeaways
- SAFEs (Simple Agreements for Future Equity) → Flexible investment that converts to equity later without a fixed valuation at the time of investment.
- Post-money SAFEs → Valuation cap includes new funds raised, affecting equity distribution and founder ownership.
- Priced Rounds → Equity is priced, setting company value and diluting existing shareholders, including founders.
- Dilution Impact → Each funding event (SAFEs or priced rounds) dilutes ownership; manage carefully to retain control.
- Keep it Simple → Focus on growing the business rather than overcomplicating funding terms or equity splits.
How to Calculate Startup Valuation
Source: Startup Valuation: How to Calculate It – Startups 101
Why You Must Watch This
Early-stage founders often struggle to determine a fair startup valuation or evaluate offers from friends & family, angel investors, or seed/Series A rounds. Understanding the mechanics helps ensure fundraising is reasonable and attractive to investors.
Key Takeaways
- Valuation varies by round → Friends & family, angel/seed, and Series A investors have different expectations and benchmarks.
- Convertible instruments matter → Convertible notes and SAFEs impact effective valuation via caps and discounts.
- Consider founder vesting → How founder equity vests affects investor perception and risk.
- Fundraising amount influences valuation → The size of the raise and company stage help determine what is “reasonable.”
- Financial modeling helps justify numbers → Use projections to support valuation discussions and ensure transparency.
