What exactly is this Capitalization Table my venture capitalist keeps asking about?

Singapore vc cap table

A Capitalization Table (“Cap Table”) is basically a spreadsheet that illustrates how the startup has been divided up. It basically totals up the total amount of the various securities in the company and usually includes the amount of investment obtained from different funding sources.

A detailed Cap Table tracks all different classes of equity (such as preferred and common stock) as well as stock options, warrants, employee stock pool, etc.

Now the easiest way to demonstrate how a Cap Table works is by example.

Let’s imagine a hypothetical company has just formed in Singapore, and there are three founders, Jason, Xiaoming and Ah Kow. They’re building a platform for arowana owners to buy and sell prized arowanas. The Carousell of arowanas, as they say.

In consideration for 10,000 shares of common stock each, all three of them put in S$10,000. With the money, these guys are going to develop the first iteration of their app, and spend the remainder on promoting it. They’re really excited about it. These guys really like their arowanas.

Half a year later, ArowBuy has gained some traction among arowana enthusiasts in Singapore. Jason, Xiaoming and Ah Kow decide they want to take ArowBuy to the next level and decide to approach investors for seed funding and mentorship. After searching around for some time, they finally convince a venture capitalist in Singapore to bite. The investors will pump in S$50,000 but they want 20% of the company as well as an Employee Stock Option Pool (“ESOP”) quantum of 10%.

The following Cap Table demonstrates how ownership of the company is altered after the investment and implementation of the employee pool.

The unissued employee stock options are taken into account in the fully diluted post-money capitalization. While the investors still get only 20% of the startup, insisting on an employee pool essentially shrinks the founders’ size of the pie, and provides additional economics for the investor.

The founders now only own 70% of the company as opposed to 80%, and the future employees’ share ownership is effectively coming out of the founders’ pockets.

What we’ve described is a fairly simple example illustrating a relatively common funding scenario. However, Cap Tables can become quite complex especially after multiple rounds of funding.