6 things venture capitalists want to see from your cap table

Securing investment may be item number one on the agenda for many companies, but it shouldn’t be their only priority. Your cap table, for example, is a like a map of your ownership. It’s a record of who holds your shares, how many they hold, and of what type. However a cap table can sometimes be overlooked in favor of more immediate concerns, but problems that arise from neglecting it can be alarming to investors.

Since it outlines who controls the direction of your company, a well-maintained cap table can often be indispensable when it comes to attracting investors. Here are 6 things they want it to show them:

1: Are your founders invested enough?

Something venture capitalists (VCs) will often look for are founders with enough of a stake in the business to ensure they stay focused on building and directing it even after securing funding. They want to know that the right people are in charge and that they have a definite interest in supporting the continued development and growth of the company.

A cap table showing that your founders are substantially invested, even after early funding rounds, can help send a strong positive signal to investors.

2: Do you have an adequate employee equity pool?

Investors want to know that your people are motivated and engaged. Providing employees with equity encourages them to think like owners and can help to align their goals with company goals. It can also help you to attract and retain key talent. Without providing adequate equity for employees, investors may doubt your staff are as involved as they could be, and this could affect their investment decision.

Demonstrating an adequate employee equity pool could help persuade investors that your employees are properly incentivized to support the ongoing success of your business.

3: Is your ownership easy to evaluate?

A complex cap table can have serious consequences for your company. If it is difficult for an investor to tell who actually owns the business, it can make their decision to invest even harder. Presenting investors with a clear and organized portrait of your ownership helps them buy in to your vision with confidence.

Streamlining and simplifying your cap table can help convince investors that your company is headed in the right direction, giving them more confidence that the right people are in charge.

Bonus tip: The administrative burden associated with running a cap table will increase and become more complex over time, which is why many companies choose to outsource some or all of the management of it to a trusted cap table management provider.

4: Do you keep your data accurate and up-to-date?

Your cap table is supposed to help you secure investment. Investors will expect a current and correct breakdown of your ownership, as even small changes can affect how they perceive your business. Errors in data can spiral over time, sometimes with serious financial consequences, and can be major red flags for investors. Getting things right from the outset is better than trying to pivot later.

Ensuring your cap table is up-to-date and correct can be vital when it comes to securing investment. Services that support and automate this can help save you valuable time and effort.

5: Do you make sure your data is thorough and reliable?

Companies will often offer different employees different types of equity, and these employees will likely earn their equity on different vesting schedules. This can lead to frequent changes to your ownership information. Similar to the previous point incomplete data and records can compromise the integrity of your cap table and could cause problems with not only stakeholders in the future, but potentially even with regulators and tax authorities.

Venture capitalists tend to prefer businesses that avoid these complications, so be careful and diligent in regularly updating your cap table.

6: Are you using professional tools?

At first, you may be happy with a simple spreadsheet for your cap table management. But such a basic solution can be quickly overwhelmed when you start raising capital. A good first impression is very important with investors, so being seen to have a strong vision of where you’re going, how you’ll get there and who’s at the wheel could make a huge difference.

Using specialized tools to manage your cap table could help you avoid these pitfalls and make you appear more organized and transparent to investors.

Need help with your cap table?

At J.P. Morgan Workplace Solutions we can provide the tools to help you effortlessly manage all your equity, from inception to IPO and even beyond. Our cloud-based solution allows you to track investors, model future funding rounds, and so much more, freeing you up to concentrate on driving your business forward.

Talk to us today, and see what our cap table services can do for you and your business.