As your company grows, you have to manage the increasing complexity of issuing options and stock, employee exercises, employees joining and leaving, and of course fundraising. With each transaction there’s room for error on your cap table, so as you scale this becomes more and more of a problem.
When MapAnything, a geo-analytics and location intelligence solution provider, was acquired by Salesforce in May of 2019, their clean cap table-managed on Carta-helped both parties speed through the due diligence period.
If you use Carta throughout your company’s lifecycle, all transactions, from issuing and exercising options to accounting for dilution, automatically update your cap table. This saves you a lot of time when you raise that next round, run a tender offer, IPO, or get acquired.
Chris Rosbrook is the CFO of MapAnything. And even though he kept some versions of MapAnything’s cap table in spreadsheets, he always realized that “the real source of truth was Carta.” Knowing his data was complete and accurate, kept him especially happy during the acquisition process.
Why clean cap tables are necessary during an acquisition
Companies can’t begin to perform their due diligence if they don’t have access to your cap table. If the acquiring company doesn’t understand the data-because it isn’t clean, digestible, or trustworthy, then you may not get acquired at all.
And when you get acquired, your existing shareholders often become part of the acquiring company’s cap table. This can get messy, and even messier if your cap table isn’t up to date.
In a recent article, The Economist described the problems that result when companies raise rounds and issue different share classes:
“Misunderstandings between investors, who believed they were guaranteed a certain return, and founders, who remembered things differently, occur more regularly than either group cares to admit. Employees are promised shares that may not exist. Founders forget that when their firms issue convertible debt it may one day need to be converted to equity. Add in errors, which can be introduced into spreadsheets through forgetfulness or fat fingers, and you have a recipe for lawsuits.”
If you wait until an exit event, like an acquisition, to clean up your cap table, errors can hinder the closing. An unclear ownership situation means your legal and finance teams will need to slow down, go back in time, and try to dig up who owned what, when. Every delay can add up, and the deal itself could be at risk.
Sharing your cap table during due diligence
During acquisition talks, the acquirer needs to see the cap table. They need to verify ownership stakes, security holder information, liquidation preferences, and more. As Chris described, “I would’ve never thought that as part of an acquisition, the acquirer would say, â€˜Let us into your cap table directly-we’ll just do our due diligence there.’”
The Salesforce M&A team was able to work with Carta and were familiar with the platform’s capabilities. Thanks to this, the MapAnything team was able to quickly share access to their cap table.
A few clerical errors were found and Chris’ team quickly fixed them. There was no back and forth over previous funding rounds, or worse-the need to hunt down paper certificates. Salesforce’s ability to navigate MapAnything’s complete cap table on Carta helped save quite a few steps and continued to add value as the closing process went on. “They could just go in and do all of their work and come back and ask us questions,” according to Chris.
When your company is getting acquired, there’s enough to think about. With Carta, Chris didn’t have to worry if ownership was correct. He had peace of mind, as should his shareholders, that ownership would be properly reflected after the acquisition.
With a clean cap table on Carta:
- One source of truth
- A cap table that updates in real-time
- Due diligence can happen faster, because information is more transparent
- Built-in compliance ensures data accuracy and reduces legal liability
- Easy sharing with the greater Carta community of auditors, lawyers, accountants, and investors
With a non-Carta cap table:
- No single source of truth, multiple cap tables can cause confusion and inaccurate historical data
- Transactions have to be manually entered, leaving room for error
- Due diligence challenges and compliance risks
- No built-in sharing with a community of thousands of people already familiar with the platform
DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta, Inc. (“Carta”). This communication is not to be construed as legal, financial or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.