Cap Tables: The Complete Guide for UK SMEs
In this article:
- What are cap tables?
- What do cap tables look like?
- Does my company need a cap table?
- How do I create a cap table for my UK company?
- Meet QCap: Shareholding made simple
What are cap tables?
A capitalisation or “cap” table is a summary of company ownership. Your company’s cap table contains key information about your shareholders. This includes details like how much of the company each shareholder owns, the class of shares they own, as well as the price and rights that come with these shares.
What do cap tables look like?
Most UK SMEs are limited companies (ltd) that are privately funded. Limited companies can be incorporated with as little as £1 share capital, traditionally divided into a million shares at a value of £0.000001 per share. In practice, what your cap table actually looks like depends on how complex your shareholding structure is.
Share classes describe the type of shares held, and associated rights. Most companies will start with one share class, ‘ordinary’ shares, that assign the shareholder both voting and dividend rights (the right to benefit from company profits).
In a literal sense, the cap table is going to be a table or chart illustrating ownership. You can start with essential columns, e.g. ‘investor name, shares owned / percentage stake, share class’, expanding later.
Does my company need a cap table?
Yes. All companies with more than one shareholder require a cap table of some kind. How this is managed is up to the company.
As many startup founders will know, seeking venture capital investment usually requires you to share your cap table with potential investors, even early on. As you go through funding rounds, you’ll also be required to share your equity structure with existing and potential investors. Existing shareholders will want to know how their stake is diluted with incoming investment. When you make key hires, particularly across senior leadership, you might think about offering equity or ‘share options’ to employees. If you’re thinking about crowdfunding as a source of investment, you’ll definitely want to know how your shareholding changes. All of these processes are underpinned by a well-managed capitalisation table.
They aren’t just for startup founders either – maintaining a good, up-to-date cap table gives traditional, brick-and-mortar businesses an opportunity to pursue investment through either private investment or crowdfunding. Looking for investment outside your ‘friends-and-family’ network could give you access to new business opportunities, but you can’t achieve this with disorganised equity management.
How do I create a cap table for my UK company?
You could use a spreadsheet…
Initially, cap tables can be quite simple, prompting many companies to use basic tools like spreadsheets. Our research with techUK found that an overwhelming majority (73%) of fintech founders surveyed used Google Sheets or Excel to manage their shareholding.
You can find good cap-table spreadsheet templates online. These will work for a while, but eventually become troublesome, and time-consuming.
…but it won’t last forever
However, as the company grows, the cap table becomes increasingly complex and needs updating often. At this stage, updating a fiddly spreadsheet, making sure you’re sharing the right version, or trying to model complex scenarios in Excel starts to make your life a whole lot harder than it needs to be. No wonder 31% of founders describe equity management as ‘painful’, or ‘very painful’.
Managing equity in spreadsheets is time-consuming too, meaning as a founder, it’s distracting you from seeking investment or running your business. With COVID-19 making investment all the harder to find, you don’t want poor equity management to delay, or spoil your chances of closing funding.
Set yourself up for growth and close funding rounds with ease
So, it’s worth investing in a decent, robust cap table solution. We recommend setting your company up for growth from the very beginning. We’ve designed our cap table platform, QCap to be simple, intuitive and jargon-free. QCap is backed by our secure, private blockchain Huski, meaning every update to your cap table is recorded securely – accessible to you whenever you need it. QCap scales with you: whether you’re a high-growth fintech going for Series D funding, an independent accounting practice, or the local pub, we’re here to handle the complexity of equity management for you.
You don’t have to use QCap, but do invest in setting up your cap table correctly. Streamlining your equity management makes it easier for you to seek investment and close funding rounds. Sharing your cap table increases transparency, which means lower risk for your investors (both existing and potential). Finally, you can improve employee motivation by offering equity as part of their compensation package, meaning you can retain top talent.
Meet QCap: Shareholding made simple
As serial entrepreneurs, our team has experienced the worries caused by poorly maintained cap tables. We see ‘broken’ cap tables all the time, and we know this can cause companies to lose out on funding in an already competitive, now-harsh landscape. If you’re motivated to set your equity management up to be successful and scalable from day one, check out QCap.
We want your company to have the best possible experience on QCap, so we’re giving our first few users a whole year’s access free, in exchange for feedback. This way, we can be sure we’re really adding value for your business.
See QCap in action: Watch the short video below to learn what QCap can do for your business.
Please note that this article is intended to inform rather than advise. As such, it should not be construed as financial, legal, or tax advice.