Cap Table & Exit Strategy Planning

A Cap Table is a detailed document that outlines the equity ownership of a company. It includes who own what percentage of the business

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What is a Capitalization (Cap) Table?

A Cap Table is a detailed document that outlines the equity ownership of a company. It includes who own what percentage of the business, how much they’ve invested, what kind of shares they hold, and the value of their holdings. It’s a blueprint of the company’s financial & ownership structure and evolves with every investment or equity issuance.

Importance of Cap Table

The following are the reasons why Cap Table is so important as follows:

Ownership Clarity:

It lays out the stake each founder, investor and employee holds and there is no ambiguity thereof.

Investor Confidence:

Investors often review your Cap Table before making funding decisions. When the Cap Table is well-maintained, it reflects transparency and professionalism.

Future Fundraising:

Each funding round dilutes ownership. When a Cap Table is in place, to visualize and plan becomes easy.

M&A or Exit Strategy

Buyers use the cap table to estimate how much equity they need to acquire to control the company. It also influences negotiation over price, structure, and post-deal integration. Further, the Cap Table allows simulation of exit events like IPOs, acquisitions, or secondary sales. [Scenarios like “waterfall analysis” (who gets paid in what order and how much) are based on the cap table].

Compliance and Legal Use:

A clean, accurate cap table indicates strong corporate governance.Red flags (e.g. unissued options, incorrect share counts, or missing vesting schedules) can delay or derail a deal.

Why Exit Strategy for ESOPs Matters

  • Aligns expectations of employees and investors.
  • Ensures smooth payouts or conversions at the time of exit (acquisition, IPO, etc.).
  • Minimizes legal and tax complications for both the company and employees.
  • Enhances employer brand value and trust.

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