The Cap Table Tool Every Entrepreneur Should Know
by Chris Morgan, Senior Manager, Client Services & Innovation
Starting a business is typically initiated from a place of passion, excitement and a creative idea that will add value to future customers. As it should be – it’s an exciting time and a great undertaking.
Often, however, that creative and high-level mindset can get bogged down in the details of accounting and legal work, sometimes from the very onset of filing your articles of incorporation.
Where Other Cap Tables Fall Short
Even when the stars are aligned and a great idea, executive team and funding all converge, there are still details to iron out, such as corporate documents and a capitalization schedule. It’s quite natural to throw the first few transactions into an Excel sheet, maybe even adding in some nice formatting to make it look more legitimate to your angel investor.
But as the company’s finance needs grow, so does the Excel sheet.
And that will take some serious attention to detail to make sure your dilution clauses are being observed, that the pre-money valuation took into account the convertible note, and that the ESOP options were fully executed, and more.
So while born of necessity, the excel sheet will eventually fall short of meeting your company’s needs to properly manage and grow your various financial offerings.
ENTER: Gust Equity Management Cap Table
When I found Gust’s cap table equity management tool, I was managing one of these Excel-based cap tables that had, over the years, been adjusted from a couple of initial investors to include buyouts, sweat equity, ESOP plans, convertible notes, canceled agreements, and more.
I approached cautiously.
After first moving all of the data over, I thought it was a pretty cool cloud-based product – but I wasn’t exactly blown away.
For my first few transactions, I made sure to book both in Gust and my crazy Excel sheet just in case. Then came time for the next fundraising round, and Gust started to flex some of its real power.
Typically, the calculations for the financing terms are quite involved and one small error in an Excel formula can have broad-sweeping issues that create doubt and concern in investors. But with Gust’s cap table tool, it’s simple to issue a new type of security with a wizard tool that walks through the steps and pieces of data to enter.
To be clear, it’s not that an accountant (or attorney) can’t perform these steps, but having systems and automated checks in place offers added peace of mind – or “internal controls” in audit-speak – to a process that needs to be nimble and enable an entrepreneur to get financing in the bank.
Along with the guardrails of the wizard tool, the system produces a professional financial modeling report that displays the details of the raise, waterfall reporting of various exit price points, the resulting cap table, and how much each current investor would need to contribute to the round to keep their same equity percentage.
This type of modeling took time and precision to calculate in Excel, and often parts of this valuable modeling are just skipped.
Along with typical equity stock sales, Gust manages ESOPs, Convertible Notes, Liquidation Preferences, Warrant Blocks, Option Pools, and more. It boasts great modeling features that can handle waterfalls, debt analysis, and understand the impact of your next round.
With their secure file attachment, audit trails become easy to manage, attaching the fully executed documents to each security authorization and individual issuance. Users can even provide investors a login if they’d like to view their investment in a portal.
After using this cap table tool for a couple of years now, I feel like the Excel sheets were like trying to write a blog post on a typewriter. It’s always best to pick the right tool for the job (work smarter not harder). And for cap tables, Gust is it.
There are a number of other features and solutions that Gust offers to help with the capitalization needs of startups, entrepreneurs, and established companies alike.
Gust Cap Tables & CFO Alliance: A Perfect Pair
At CFO Alliance, we love being able to work alongside those business leaders.
We make sure the right questions are being asked, the right tools are being leveraged, and the right structures are being considered to enable business leaders to lead their business while re-tapping their passion, energy and entrepreneurial spirit to pour into their company and customers.