• Silver Eliasen posted an update 1 year, 11 months ago

    So you’ve done your homework and are ready to do some Cap Stick calculation. Your first question should be how do I do a Cap Table? You probably know that a cap table is simply a financial statement that presents all the different holders of debt and stock as well as other variables which can influence the value of a business’s stock. Don’t worry, this tutorial will walk you through it.

    A waterfall analysis is often the more technical term used to define the method of calculating exactly how much each investor and bond holder will receive upon any given liquidation event for the business (e.g. an acquisition, an IPO, a sale, etc.). Essentially startup ‘s just a series of complex mathematical calculations where you apply the different share terms to the underlying stock options in the correct order to complete the entire thing through… effectively “turning the page” on the options and trading accordingly. This is a very important part of the simple cap table, and is often where a lot of “experts” come in to play and abuse the loopholes of the system.

    First off, what is a simple cap table? It’s simply a list of all possible outcomes when you buy or sell stock options. For example, let’s assume you buy a call on a put option for a certain price. Depending on whether the stock increases or decreases, you may end up owning either a call with a zero dollar profit or a put with a profit of roughly ten cents. We can use these numbers to derive our actual profits and losses.

    Now, to create a simple cap table, we need to download a cap table template. There are two ways to go about this. The first is to pay a broker and get his/her hands on a cap table template from an investment firm (i.e., ETF Trust, Morningstar etc.). This option has several distinct advantages over doing it yourself. First off, you’ll get personalized advice based on your own investment portfolio and current holdings.

    Secondly, you have access to a constantly updated portfolio of hundreds of ETFs by just making a few clicks. In addition to the simple spreadsheet interface, you will also be provided with ETF round Robin data that allows you to track the performance of individual stocks through different ETF rounds. What is so great about this feature? Let’s say that startup invested in two related companies and their stocks perform differently. In the event that one company tanks, you won’t lose money on the other. That is because the two companies trade in separate rounds during the ETF trading day.

    Simple cap tables also have several additional features that can be very helpful for new or not-so-experienced investors. For example, if an investor needs to do some quick research on certain data or ETF investments, he/she can simply do a search using the index that the ETF is most closely related to. If the ETF is an ETF that tracks foreign stocks, then the search will return a list of all of the foreign stocks that are associated with that ETF. Then, if the investor wants to know what the market value of the foreign stock is at the time of purchase, then he/she can simply look up its trading price using the same tool. It’s almost as if the trader has a whole dashboard full of data at his/her fingertips!

    Finally, another useful feature of simple cap tables is that they give investors an opportunity to “own” the underlying asset, or portfolio as it is called. Basically, instead of holding an interest in an entire array of different companies, investors can “own” an individual piece of that portfolio. This can be especially valuable during the early stages of an investment. For example, if an investor is interested in finding out how much money his/her portfolio is worth, then simply looking up the values of each of the ETFs can give a very quick and revealing look. However, this kind of information does not have to be shared with anyone else – meaning that early stage investors can have a bit more privacy when it comes to protecting their portfolios.

    Of course, just as complex cap tables can be extremely useful tools, they can also serve as hindrances to early stage investors. For instance, the very fact that complex ETFs carry a wide range of different types of securities along with a number of different types of warrants (even more so in the case of newer ETFs) means that the total value of all of these items can quickly become overwhelming. Therefore, early stage investors may want to invest in only a select number of different types of securities, and also choose the ones that they actually need to track. Simple cap tables can serve to keep track of these smaller holdings, but they can also serve to limit the amount of shares of any particular security that any particular investor holds. Finally, while complex ETFs can serve to provide tremendous value to buyers of a particular security, early stage investors might want to stick to simple ETFs themselves and avoid taking advantage of the complex financial machinations that ETFs can provide.