Why Simple Cap Tables Are Important
How many investors should you have on your Cap Table? This article covers what a cap table is and why a simple cap table is so important.
What is a Cap Table?
A Capitalization Table (or “Cap Table”) is a document that details who has ownership in a company. It lists all a company's securities (or shares), including stock, convertible notes, warrants and equity grants, and indicates who owns what portion of each. This information is often maintained in a spreadsheet that gets increasingly complex over time.
How many investors should you have on your Cap Table?
The investors on your Cap Table inevitably end up being ambassadors of your business. It’s in their interest, after all, for your company to grow as the value of their shares will too.
The early believers are usually angels, friends and family members. Soon enough, though, you start going to institutions and larger-ticket investors, institutional investors and VC’s who also help price your equity round, and before you know it you realize you have about more investors than you can count off the top of your mind on your Cap Table.
Okay… So why does this matter?
Although investors can give a company significant benefits (becoming a support base, value-adding community of advocates), they can also be both time-consuming and costly to manage as you grow and raise more funds.
The main pain point stems from the fact that you will require signatures and approvals from every single name on your Cap Table for any fundraising and shareholder decision matters. Consider the closing of your first priced equity round as an example where you are working tirelessly to close a fundraise and have to follow up with your investors one by one on every detail of the process until you get all your agreements signed. From there, future fundraising rounds, potential M&A transactions and other time-sensitive matters that need shareholder approvals and signatures.
In short, a large number of investors on your Cap Table can cause an administrative burden, forward-looking legal costs and a time commitment that founder’s cannot afford.
So where does Zest come in?
Zest wants to help you simplify your Cap Table. And this does not mean raising your minimum investment ticket size or compromising the number of investors you want to have onboard.
Our platform allows you to aggregate multiple investors into an Investment Vehicle that becomes a single line (and single signature) on your cap table. Our model is beneficial for both you (as a company) and your investors and can be used to (1) aggregate existing investors prior to conversion into equity or between fundraising rounds to simplify your ownership structure as well as (2) during a fresh fundraise where investors can register, onboard and invest through a Zest Investment Vehicle directly.
The investors who you would want to aggregate into Zest’s investment vehicle would likely be those with investment amounts below a certain threshold of your choosing. They maintain their full economic benefits while allowing you to streamline and simplify Cap Table management.
In addition to just bundling these investors, Zest’s platform has several benefits:
- Automates and manages the end-to-end investment processes
- Digitizes onboarding / KYC, documentation signature and funding notifications
- Allows you to monitor transaction status & updates, and combines all investments made via Zest
- Best practice governance and legal structure
- Handles the administration of the Investment Vehicles for the lifetime
- Potential for future secondary liquidity in case you would like to exit your investment early, without having to undergo typical cumbersome processes involved otherwise.
Calling all founders to reach out to us. We’d love to hear from you. Join Zest here.
Launch a Zest vehicle to suit your needs
From the blog
The latest industry news, interviews, technologies, and resources.
Reserved Matters: What You Need To Know
Reserved matters are a type of protective provision outlined in investment documentation that explains which corporate decisions need to be approved by a select group of people.
The Emerging Manager Playbook For Navigating The Private Markets
Navigating the private markets as an emerging manager can be daunting. In this article, we attempt to demystify investing in the private markets and outline options for starting and scaling your investment business.