Cap Tables and Investment Decks: Nail that pitch every single time! (Silicon Valley x LexStart)
Silicon Valley S01E02
Upon being informed of Peter Gregory’s interest in investing in Richard’s startup, Richard shows up at Peter’s office to collect a cheque and is surprised when Peter asks him to furnish a “cap table”, an “investment deck” and a host of other documents.
Richard is of course flummoxed. What is a cap table, he asks?
A cap table or a capitalization table is a table that presents a breakdown of the company’s equity capital. Simply put, it is a table that lists (a) all shareholders of the startup, (b) all persons who have been promised shares in the Company, and such right exists (and has not expired), (c) ESOP pool, (d) any other right of anyone to shares in the startup. Along with these, the cap table also has to list the number of shares, type of instrument/shares (whether CCPS or Equity or ESOP or CCD or CN), and ownership percentage.
In addition to a cap table, Peter Gregory also seeks an “investment deck” before investing in Richard’s company.
Think of an investment deck like your business plan. It needs to have an overview of all the details that will help the investor decide whether or not to invest in your startup, so it will include details of your business, size of the market, revenue models, projections, use of investment money, etc.
A business plan is also annexed to the Shareholders’ Agreement/Investment Agreement and the Investor requires that the investment amount be used only in accordance with the business plan.
The business plan is typically required to be updated on an annual basis, and any deviation from the same also requires the prior written approval of the investor.
After having managed to create a cap table and investor deck, when Richard finally gets a cheque in his hand, he realizes that the cheque is made out to “Pied Paper Incorporated”. Not a big deal, he thinks, because that is the name of his startup, isn’t it? However, when he shows up at the bank to encash the cheque, he learns, to his horror, that “Pied Paper Incorporated” means that the company should have been incorporated!
A company in India as well is a separate legal entity, and by “company” in India, we refer to a private limited company incorporated with the Ministry of Corporate Affairs! We often get asked if a sole proprietorship will suffice. To clarify, a sole proprietorship is not a company. If you are looking at fundraising from a VC, then the only entities that are eligible to receive such funding in India are private limited companies and LLPs. However, LLPs are not very popular with VCs, therefore the only choice is a private limited company.
“Private Limited Company or Limited Liability Partnership. Which one to choose?”: https://www.lexstart.com/post/private-limited-company-or-limited-liability-partnership-which-one-to-choose
Find out more on incorporating a Private Limited Company in India here: