Quick Tip A Fundraising Dealbreaker: Crazy Cap Table

Startup Tips, Fundraising, Crazy Cap TableSo your product is out and your starting to get some traction (if you need more traction click here). It’s time to take that idea and go to the next level, but for that you need money.

Fundraising is the hardest part of a startups life. Many startup founders are inexperienced at fundraising, and perhaps the thought in itself is scary. Compound that with the fact that it’s traditionally it’s harder to raise money “everywhere else” and you’ve got the cards stacked against you.

So going forward with fundraising you need to make sure all your ducks are in a row. You want to make sure your deck looks great and your executive summary is clear and concise. You want to have your milestones and victories prominently showed off. You don’t want to waste an investor’s time.

Forbes recently posted some tips on deal breakers for inexperienced entrepreneurs. One of those is having a crazy cap table.

If you’re not familiar with a cap table, no worries, it’s the part of your corporate structure that defines who holds what in terms of equity.

A crazy cap table is a hodgepodge of small investors who may cause potential headaches for management and institutional investors.

How can you fix it?

While you may have given equity to anyone who liked your idea enough to give you a little bit of money, it’s time to start evaluating who gave you what, how much equity you gave them in exchange and what they will bring to your company down the road.

You can approach this and clean up your cap table by buying back your existing stock whenever you can afford it. You can also dilute those equity holders as you raise money. Be very leery of any investor that refuses to get diluted, and/or asks for preferred stock early on.

If you have an investor in your cap table that many not be a recognizable name to your future investors but bring something of real value to your company make sure that’s highlighted in your executive summary.


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