The dangers of using Excel for your cap table

The dangers of using Excel for your cap table

Author: Jesse Klein
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Read time:  3 minutes
Published date:  June 8, 2017
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Updated date:  April 18, 2024
As a company grows so does the complexity of the cap table. Here are some examples of the pitfalls of using a spreadsheet for your cap table.

To a newly formed startup, the idea that a cap table could become a massive headache seems ridiculous. Early on in a startup’s life, the cap table is a simple spreadsheet on Excel with names, titles, percentages, and number of shares. This seems manageable by even the most basic of Excel users—especially if you use a pre-made spreadsheet (you can download our cap table template here).

But as a company grows so does the complexity of the cap table. Raising capital means more investors and different share classes. Start adding rows. Hiring employees means tracking option grants and vesting schedules. Now include sheets and formulas. And when some of those employees leave, their options need to be purchased by the employee or returned to the company option pool. Time to change and delete data. And with a cap table, a single mistake means the loss of sensitive data.

As Tomas Tungz, a VC at Redpoint, wrote, “At some point, the Excel workflow becomes unwieldy and burdensome.” Even still, companies are wary of transitioning from Excel to a cap table management software. Busy CEOs worry that transferring the data will be just as much of a hassle as updating an Excel file.

While managing a cap table in Excel is time-consuming and costly, if your business undergoes a larger strategic shift, such as a merger, acquisition, or change in corporate structure, Excel will simply break. Here are a few examples we’ve seen at Carta:

1. Changing your corporate structure:

A company we will call McKenna Corp, was growing year over year, but, saw a strategic opportunity to convert from a C Corporation to two LLCs and save tens of thousands of dollars in taxes. While it was the right decision strategically, the process of converting common stocks to membership units and option grants to profit interest units required a massive change to their cap table. In order, to execute the business decision, they needed to be confident in their cap table.

In Excel, this process would have been a nightmare. McKenna had hundreds of stakeholders. Each stakeholder had to sign off on the change and each stakeholder’s shares and vesting cycle had to be properly mapped from the old organization to the new LLCs. By using software, each transfer agreement could be tracked online and all the shares could be converted automatically without human error.

The last thing McKenna wanted to do when making this shift in business strategy was to get stymied by cap table issues. Software was key.

2. Merging multiple companies into one:

A company we will call Lusca Media decided to go forward with a major merger. They combined five digital media companies with almost 100 stakeholders each into one larger entity. Half of the companies were using Carta while the other half was still on spreadsheets.

The cap tables for each of these five companies were extremely complicated. They contained over 15 shareholder classes, 3 different warrant and option grant types, specific vesting schedules for each set of shares, and hybrid option requirements. Combining these wasn’t just a simple copy and paste.

Software allowed Lusca Media to create rules for each of the companies being merged. These formulas would dictate how each of the share classes was transformed into shares of the new company. This meant making 10 or 15 calculations rather than 500. In addition, software allowed the old company cap tables to be saved so any mistakes could be reverted or corrected.

3. Getting acquired:

The dream of nearly every entrepreneur is to IPO. The next-best exit scenario is to get acquired. Carta recently worked with Trello during their acquisition.

Acquisitions are an incredibly delicate process, made more challenging by the fact that only a few select employees lead the charge while other employees remain focused on growing the business.

During Trello’s due diligence process they had to present their current cap table to the acquirer, develop waterfall scenarios for all current employees and investors, and show historical cap tables. These snapshots would have been next to impossible to provide in Excel. With software, pulling this information only required a few clicks, allowing the acquisition team to focus on other important parts of the due diligence process. In the end, Trello was acquired for $425 million.

Ownership matters—and when you manage your cap tables in Excel, you risk losing track of it. Getting your table right from the onset sets you up for success. Carta’s free plan, Launch, empowers businesses with 25 stakeholders or less (and up to $1M raised) to get on the right track. Learn more about Launch and contact your lawyer to get started. 

Author: Jesse Klein
Jesse was born and raised in the Bay Area. She crossed the country to go to the University of Michigan before heading back to her roots in San Francisco at Carta.