Capitalization Table Analysis

How to Analyze a Cap Table:

An investor pitch (when selling equity) always includes a capitalization table because it shows the exact distribution of ownership of stock of the company before and after the sale of the stock being offered. Not only does Offtoa produce the cap table for you automatically based on the assumptions you have made, but it also performs a thorough analysis of it looking for the same properties that investors look for. The primary reason for Offtoa to surface these issues is so you can fix them rather than suffer the embarrassment of potential investors finding them.

Here is a partial list of the kinds of issues that Offtoa looks for in the cap table:

• Dissatisfied With Founders' Stake After All Investments (Undiluted)
• Dissatisfied With Founders' Stake After All Investments (if All Options Exercised)
• Optionholders' Stake Too Small After Exercise
• Optionholders' Stake Too Large After Exercise
• Small Percent of Options in Option Pool Are Granted
• More Options Granted Than Authorized in Option Pool
• Dissatisfied With Pre-Money Valuation for any of the Investment Rounds
• Raising Cash in Manner Inconsistent with Goals

Whenever Offtoa finds a potential issue, it highlights the symptom for you on the cap table, and offers a list of suggested solutions, each of which describes exactly which assumptions you need to change to fix the issue. However, don't just “fix” the issue by blindly selecting one of the suggestions. That will result in you having a set of financial statements that look good but have no basis in reality. Instead, make changes to assumptions that you believe are feasible and then change your business strategy to reflect the new plan. If none of the suggestions are feasible in your mind, then perhaps you don't have a viable company :).

Questions:

How does Offtoa know if the founders' stake is satisfactory?

Offtoa simply explains to you exactly what the cap table is saying in common English regarding the founders' ownership and asks you if it is satisfactory. If you say it is not, Offtoa provides a list of changes you can make to the assumptions to fix it.

How does Offtoa know if the optionholders' stake is satisfactory?

Offtoa simply explains to you exactly what the cap table is saying in common English regarding the optionholders' ownership and asks you if it is satisfactory. If you say it is not, Offtoa provides a list of changes you can make to the assumptions to fix it.

What percent ownership will an investor want?

Although rumors to the contrary abound, professional investors in startup companies do not care about percent ownership. What they want is a great return on their investment. See the help on reading an IRR table to see what investors really care about.