We are moving to the last part of our series covering the history of companies. In this article, we will focus on our approach to equity management and procedures of attracting capital for companies in the modern era.
As we’ve seen in our previous articles, companies changed massively, while financial markets and regulation of their work are staying quite stagnant. It’s irrelevant to mention how the adoption of personal computers and the internet changed the workflow in most companies.
Now we use cool task trackers (we wanted to just simply write Asana but sadly there are people that choose other tools), store loads of information in clouds, collaborate in Figma or Miro, you can even forget about ever going to the office now, last 4 months have proven it perfectly. But on the other hand, we have government or financial institutions that still require paper documents only, use Excel for accounting purposes, have intermediaries some of which can be replaced with a blink of an eye. Put in other words, you build processes in your company, as you drive Tesla but use 1957 Fiat 500 when it comes to outside communications and it’s still a car but it takes ages to fix it every now and then.
So same inefficiencies arise when it comes to equity management.
Equity Management and Administration: Current Flaws
From a view of someone not familiar with processes related to company management, it might seem that raising capital is one of the hardest processes. Of course, it is true, but a struggle doesn’t stop here. Proper equity management is equally important and might require even more time, resources and effort to be managed properly.
When it comes to equity management, the first and most vital task is cap table management. The capitalization table is a spreadsheet or table that analyzes a company's equity capitalization. This can include things like:
- The company's percentages of ownership
- Equity dilution
- The value of equity in each round of investment by founders, investors, and others.
Put another way, the cap table lists all of your company's securities that have been issued (like stock, warrants, and equity grants) as well as who owns them.
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. If it is not, your company may face significant issues, including fines, outraged investors, and issues with the next financing rounds.
As most cap tables now are managed manually, it becomes almost a full-time job. But according to several companies working on the market, this manual work leads to mistakes, as a result over 90% of capitalization tables are wrong.
As a result, companies have to attract legal firms in order to clean up this mess. In most cases, it costs between $5,000 and $15,000 to clean up your cap table using a law firm. Most early-stage startups will only do it before a financing round. That leaves months and possibly years of corrections to make, certificates to find and options to be exercised.
Employee ownership is a proven model to build healthy companies and workers who are highly satisfied with their jobs. As employees can see a direct link between the work they do every day and the performance of their company.
However, just like everything related to equity, ESOPs (Employee Stock Ownership Plans) have complex operating rules and require significant oversight. If the company does not staff the ESOP properly, they risk problems and potential violations. Small companies and those with unsophisticated accounting processes are particularly ill-suited to ESOPs because they lack the infrastructure to follow the protocols and provide the required support and information to employees.
No matter how many shareholders own equity of your company, constant communication is a must. So what might be flawed here?
First, all procedures, such as votings, reports, and just general day-to-day communications require constant direct involvement of your team. Usually, it might take up to 1-2 months to notify and inform shareholders. Gather them in one place and prepare a separate online voting system for those not able to attend.
In general, you need 2-3 people to run the process, while current technology allows you to do all of those things in a blink of an eye.
With everything said in this series up to this moment, we’ve decided to change these processes for companies by creating one system that will allow them to incorporate a company, issue and manage the equity, build strong investor relations from one account. Without any need to visit officials but fully compliant with EU regulations.
Meet Tokenomica for Companies
In the modern era, companies need a tool that will allow them to focus on their growth and forget about medieval methods that the market is so reliant upon. Let’s quickly go over through the processes for the company from just one account on Tokenomica.
- Security Issuance
Our issuance system allows companies to issue tokenized securities for free in just 2 weeks. Your only cost is 1,000 EUR — the setup fee for the legal structuring. You no longer need to collect tons and tons of paperwork in order to issue your security.
- Campaign Launch
After your asset is issued, you are all set to offer it on our Marketplace or just raise funds directly on your website via a special widget. For sure, you will need to promote your campaign but in order to ease up some of the processes for you, you can answer all questions of potential investors, using the built-in chatbox on your company page. In order to provide more information about your business, you can post updates and necessary documentation using the same profile.
But that’s far from it, you can attract capital both in Euro and crypto, you decide which type is more convenient for your business.
- Equity Management
And now, we are getting to the biggest part. If your company may collect necessary capital in just one week (rare thing but it is possible). Equity management can’t be done that fast.
Our solution allows you to solve all the problems identified in the first part of this article.
Cap Table Management: No Excel, No Mistakes, No Law Firms
And it just looks cool
Build your capitalization table in a convenient and modern way. Plan new rounds based on current capitalization, compare them digitally, add several share classes, options, and convertibles.
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 after that, in order to comply with regulations, you can create needed reports whenever you need them.
And yes, we didn’t forget about what we’ve said earlier: each cap table might look a bit different, so you can do it in the most convenient way for you. Input the data manually, import the list of the shareholders, or just send us the information in whatever format it exists now, so we will do everything for you. The format of the table itself may vary as well.
Issue and Manage Employee Stock Options with Ease
We provide tools that will allow issuers to create ESOP from scratch with ease and in short timeframes. Everything is done online and there is no need to attract several intermediaries in order to prepare your plan.
The issuer decides on all details, requirements, and terms of ESOP. Everything is structured personally, however, all needed templates for the ESOP plan are available for all users at any time.
With Tokenomica you have the dashboard where you can manage your stock options plan, all terms and conditions of your program can be done for you. And most importantly, our dashboard allows you to check all possible outcomes of your ESOP to eradicate the chance of mistakes. Using the direct integration with your capitalization table, all changes in the ESOP will be reflected in your cap table immediately.
Stock options management and opportunity to redeem payments or tokenized securities are available in the personal account as well.
The demands from shareholders are higher than they have ever been before and Investor Relations have become more strategic and complex. In order to keep your investors updated and satisfied and to simplify most of the operations involving your shareholders, we have developed a complete management system.
Conduct as many votes as needed, requirements are specified in the code of the smart contract. On our platform, the issuer customizes which actions require the participation of shareholders and what can be considered as a quorum.
When it comes to voting, the issuer sends the agenda to shareholders. Shareholders have several options:
1) Accept the agenda fully;
2) Propose new item to the agenda (must be accepted by the majority of other shareholders);
3) Vote to accept the new items to the agenda.
When the voting day comes, all shareholders receive the bulletin, in which they vote on items. Information about the vote is recorded in the blockchain so that all shareholders can check the results with actual votes. Our goal is to make voting as decentralized as humanly possible. No proxy mails, no phone calls, and no employees that hate preparing for these meetings.
Ever had trouble with that? Not a problem with us.
Just set new payment in the system and the platform calculates the amount needed to be sent to each investor based on the number of shares.
Shareholders will receive money on their Tokenomica account in the time set by you, the transaction usually takes minutes to settle.
Communication and Reports
Post your company news and updates on the designated Tokenomica page. This feature enables the issuer to communicate with shareholders at any time.
Additionally to updates, we have built-in Email Newsletters that allows issuers to communicate with shareholders only. You can create a new letter using a customizable form at any time.
Along with that, you can publish any document such as a report on your page whenever you want. Simply drag and drop the needed document and we will notify the investors for you.
And that’s it. While running a company, you must focus on your business, while we are taking care of your equity management.