A startup’s capitalisation table (cap table) is a crucial document detailing its ownership structure, including equity shares, stock options, and other securities. A “messy” cap table, characterised by complexity, unclear ownership, and excessive dilution, can be detrimental to angel investors. A well-structured cap table is essential for successful investment outcomes.
Key issues with messy cap tables:
- Complicated future fundraising: Complex cap tables deter future investors, making it harder to secure funding.
- Risk of dilution: Excessive option pools or unclear terms can lead to unexpected dilution for early investors, diminishing their stake.
- Legal and administrative burdens: Poor documentation and informal agreements can result in legal battles and administrative difficulties.
- Hindered exit strategies: Complex securities and numerous small investors can complicate negotiations and delay or derail exits.
- Negative signal for management: A messy cap table often indicates poor management and governance, raising concerns about operational issues.
Practical steps provided by Jozi Angels for angel investors:
- Jozi Angels conduct a thorough due diligence: Our due diligence team carefully examines the cap table before investing.
- Advocate for standardised agreements: We push for clear and consistent terms in all agreements.
- Promote simplicity in equity structures: We encourage simple and transparent ownership structures.
- Monitor dilution and exit scenarios: We keep track of potential dilution and understand the implications for exit strategies.
- Prioritise startups with clear ownership: We favour startups with clean and well-organized cap tables.
By focusing on these key points and practical steps, angel investors can protect our investments, maximise returns, and navigate the complexities of startup investing more effectively.
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