Just about a month ago, we have announced the upcoming launch of Post-Campaign features on Tokenomica. If the basic ones (voting, dividend payouts, communication with investors) seem to be quite obvious to everyone, our more advanced and features such as automated Cap Table Management and Employee Stock Ownership Plan (ESOP) might be a bit tricky.
In this article, we would like to dive deeper into both the concept and importance of proper and automated cap table management and share our approach to this important feature on the platform.
What is Cap Table Management
If you are not familiar with the traditional financial markets or not a regular on Investopedia, you might be unfamiliar with the term.
A capitalization table is a spreadsheet or table that shows the equity capitalization for a company. A capitalization table is most commonly utilized for startups and early-stage businesses but all types of companies may use it as well. In general, the capitalization table is an intricate breakdown of a company’s shareholders’ equity.
The Cap Table is vital to make the right decisions that impact capitalization For example, if you are considering new financing, you need to be able to quickly run scenarios based on different pre-money valuations, different round sizes, different available option pool targets, etc.
Or, if you are recruiting a new COO and the candidate asks for options covering a certain percentage of the company, you need to be able to quickly determine whether you have sufficient shares available in your option pool, determine how dilutive the new grant will be to other holders and calculate the exact number of shares that represents the requested percentage. An accurate and well-organized cap table will empower you to make good decisions quickly.
The cap table is actually made of several legal documents and transactions. In short, you would find the following things in a cap table:
- Exercises of options
- Conversions of debt to equity
- Stock issuances
A more complex table may also include details on potential new funding sources, mergers and acquisitions, public offerings, or other hypothetical transactions.
Below you can take a look at the most basic example of a cap table:
However, there is no “right” way to format your cap table. The main rule is: keep it organized and simple. The right cap table for a CEO might look different than the right cap table for a CFO. And the right cap table for a company that is trying to analyze multiple VC term sheets might look different than the right cap table for a company that just closed its Series A financing. Even though the form of the cap table may change depending on the use case, the underlying data should remain constant.
But even if the example above gives you a general idea of what cap table is, it looks rather dreadful, doesn’t it? At first glance, you can imagine the amount of time spent to create and manage this document.
As, the management includes recording transactions, drafting and signing legal documents, complying with regulations, communicating with shareholders, and a few other things. On Tokenomica, we want to include all of these things automatically, in order to automate the cap table management for businesses of any size.
So, let’s get to our approach. While we believe that the Cap Table must be simple, understandable, and easy to manage. It won’t hurt anybody if it will also look cool and won’t be associated with a green E-like looking logo that gives nightmares to millions of people.
If you have issued tokenized securities on Tokenomica, all information regarding your cap table will be uploaded in the system automatically. Cap table will indicate:
- Share class;
- Number of shares;
- Price per share;
- Voting percentage;
- Events (all events that influence the change in the Cap Table);
Additionally, you will be able to check the historical data regarding the capitalization of your company at any point in time.
— And what about those cases when a company had an investment round before?
— No trouble, you will just have to add or import all the info regarding previous rounds or system will check and approve the information. And this is where we are getting to another significant feature of our Cap Table Management.
Outside of automated management, we have also included an opportunity to plan the next investment round based on the current capitalization. This way, you won’t have to spend additional time on the planning and calculations, the system will do everything for you. Comparacement table of each round is also added for your convenience.
And that’s it for today, next week we will share more details about another Post-Campaign management feature — ESOP. Stay tuned!