How to build cap tables that attract foreign investors
Every business founder needs to raise funds for their startup at some point. Regardless of which funding round the company is at, foreign investors and VCs will need to see the capitalization table. It clearly outlines the ownership, equity dilution, and equity value of the startup.
A good cap table is a ticket to entry when raising funds because it shows potential foreign investors that the startup has the fundamentals sorted. So, how do business founders get it right?
While working with our clients (which are mostly startups), we discovered that everyone wanted to learn more about fundraising, and what it takes to attract the right investors/VCs. So, we decided to invite 4 subject matter experts to share their expertise and answer everyone’s burning questions.
- Make sure your cap tables are well documented, and that there is a singular point of truth. Excel files with poor version control and wrongly referenced cells can send investors running.
- The easiest time to tidy up a messy cap table is during a funding round.
- While ESOPs can be very useful for securing talent in the early stages of a business, it could easily go the other way round. Business leaders really need to educate their employees on how an ESOP works.
- ESOPs are options. Business owners should not issue a bunch of additional shares to themselves, thinking they can allocate them out later. That’s not how ESOPs work, and it will ruin the cap table.
- Investment mandates for VCs fall on 3 axes – Geographical, Stage of Business, and Industry Sectors. Focusing your attention on the ones that match your business will help you save time.
Our favorite advice from each panelist
Shi Mei: Communication, trust, and don’t be afraid to ask. Your investors are there to help you.
Martin: It’s important to think big from the start. When you think big when you go to see an institutional investor, the confidence shows.
Chris: Just think ahead. What’s the cap table gonna look like 3 years from now, based on what you’re doing today?
Tiang: Spend your time building your business, because that’s where the value creation happens. No matter how beautiful your cap table is, if you don’t have a business, you don’t have a business.
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