financial waterfall chart and capitalization table

The Value of a Capitalization and Waterfall Table

Although a capitalization table and waterfall table have different uses and importance, they are both used across the finance industry during the early and middle stages of the business lifecycle. They are necessary and extremely helpful financial documents that you will want to have prepared during the funding process.

What is a Capitalization Table?

A capitalization, or cap table is a spreadsheet or table that shows the equity capitalization for a company.  It is essential for financial decisions involving equity ownership, market capitalization, and market value. It is essentially a very detailed breakdown of a company’s shareholders equity. A cap table is generally used for start-ups and early-stage businesses, but that does not mean all sizes and types of companies cannot utilize them.

Cap tables help private companies provide information on company’s investors and their market value. They can also include information on mergers and acquisitions, IPO’s, and other transactions. A well-managed cap table can help attract higher investments and prevent diluting of your stake.

Why is a Cap Table Important?

  • Current investors and shareholders want to see who else has control and shares of the company to predict potential payouts.
  • Employees with equity stakes can see their real-time value.
  • If there is an audit, a proper capitalization table can allow your team to present your company’s history and holdings accurately and professionally.
  • An existing shareholder can easily see what percentage of the company to give to new investors in exchange for the capital contributed.

What is a Waterfall Table?

A waterfall chart is commonly used in financial analysis to display how a net value is arrived at through gains and losses over time or between actual and budgeted amounts. Changes in cash flows or income statement line items can also be shown in a waterfall chart.

The key feature of a waterfall chart is that it shows each step in the result and demonstrates how you got there. A waterfall chart is simple, even in analyzing complex information which means it will likely benefit from heavy use into the future.

Waterfall analysis is a method that presents your data in a beneficial manner, which is why they have become increasingly popular in recent years. These complex calculations take into consideration a multitude of factors to determine the results of the exit value for each shareholder. This information is presented by each round to show how the final value is broken down.

What Are The Advantages of a Waterfall Table?

  • Customize exit scenario by date and possible transaction fees.
  • Show the amount t of the round for common shareholders.
  • Determine the conversion of options and warrants from the final share price.
  • Calculate the value with interest from preference shares.
 The main stakeholders using this would include:
  • Founders
  • VC firms
  • Angel investors
  • Bank institutions
  • Employees
  • Directors and Company Managers
  • Lawyers and Accountants

How We Can Help:

Many companies calculate their exit rounds with waterfall analysis through excel. This will work for the short term and with few shareholders until it becomes too difficult to accurately calculate as more investors join the company and employees become shareholders as well.

Our consultants can help you in creating and managing your cap and waterfall tables to make sure they accurately display the data to make them of better use to you, or we can have a waterfall or cap table software implemented for you to be sure that your information about equity ownership and market value is accurately displayed and easy to decipher.

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