Why it’s smart to share your cap table with your investors

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Communicating with investors is a delicate art. As your company matures and you start to court investments beyond friends and family, your cap table will naturally grow more complex, making it trickier to figure out who should be privy to what information.

For investors, the name of the game is risk mitigation… which is why, as your company grows, you will inevitably be faced with a big question: Should you share your cap table with your investors? And if so, how much should you share? 

The idea of openly sharing this information with your investors might feel uncomfortable at first. After all, the clock’s ticking, the runway’s shrinking, and the last thing you want is a bunch of nosy financiers poking around in the engine room while you’re racing to shovel more coals into the fire. However, we believe you’re always better off in the long term when you create strong relationships with your investors, and thus should definitely consider sharing your cap table with them.

In the world of VC, transparency = value

Let’s imagine two companies that are identical in every way. They make the same product, serve the same customer base, and have collected the same amount of capital from the same set of investors. The first company is called Secret.ly, and the second Transparent.io.

Secret.ly, as you might expect, operates as a “black box” when it comes to their cap table. They only give investors the minimum amount of information they can get away with on a “need-to-know” basis (like during liquidity events or new financing rounds). This is by design; keeping information close to their chest allows Secret.ly’s executive team to more closely control messaging around things like hiring, fiscal projections, and potential exit scenarios.

Transparent.io, on the other hand, shares their cap table openly with investors, allowing them to freely calculate their ownership position and model out liquidity/exit scenarios as they see fit. The idea behind this is to give their investors freedom to understand how their money is performing, in addition to giving them helpful insight into how the leadership team thinks about subjects like financing, ownership, and exit strategies.

Clearly, one of these companies is more (ahem…) transparent than the other.

But boiled purely down to brass tacks, which company is viewed by its investors as a more valuable partner?

The answer: Transparent.io.

The reason for this is simple: More transparency means more accurate information for the investor. More accurate information means a higher degree of certainty… and more certainty equates directly to less risk.

Transparent.io’s investors enjoy a higher degree of certainty because they have all the information they need to run their own internal math and models. This is an important part of how they create their high-level strategy for fund allocation, and lets them better predict how much more money to invest moving forward. In an environment as risky as venture capital, every ounce of risk that can be mitigated creates a higher incentive to stay active in future financing opportunities.

So even though the two companies are identical on paper, by simply sharing their cap table, Transparency.io is a more inherently valuable partner from an investor’s perspective, which makes them better positioned in the long run to raise additional money (and smarter money, at that).

This becomes exponentially more important as new investors join your company. This is because:

Your investors are talking to each other (even when you’re not around)

Here’s a common phrase you’ll often hear in the world of VC: “herd mentality.”

Investors are universally interested in doing whatever it takes to reduce liability and risk. Often, this means moving in packs, be it by following a preordained trend, jumping into a popular sector, or simply communicating with each other directly.

Today’s VC environment isn’t a zero-sum game. Because of this, it’s not unusual for several different investors to collaborate with each other by sharing portfolio companies, distribution strategies, and deal flows. As a pawn on each of their respective chess boards, you and your team will rarely ever have a full, 360-degree view of the various relationships and histories at play between them.

That’s why you should do everything you can to ensure clear, consistent messaging about your business… even when you’re not in the room to guide the discussion.

Thankfully, your cap table tells the same story to everyone

One of the easiest ways to ensure consistent messaging among your investors is to share your cap table with them. And the benefits of doing so are immense; in addition to communication becoming clearer, it also becomes faster. Smaller investors will be happy to need less due diligence work up front, and larger investors will in turn be happy because deals get closed quicker.

How to share your cap table with your investors

On Carta, you can share your cap table in one click, and fully customize the level of visibility you’d like each individual investor to enjoy:

• Click over to the tab called Cap Table Access.
• Select the investor whose access level you’d like to adjust.
• Change their privileges to Full View (or another level that you see fit).

You can adjust and revise these privileges at any time.

Whether you’re a founder, investor, or CFO, there are countless reasons why you should consider sharing your cap table—from reduced risk, to increased speed and consistency of communication, to preventing internal disputes during financing events, and (most importantly) improved overall transparency and trust. Like any good relationship, the key to long-lasting success is communication, which is why we suggest you share your cap table with your investors today.

DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta Inc. (“Carta”).  This communication is for informational purposes only, and contains general information only.  Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.  Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. 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. 

This article contains links to articles or other information that may be contained on third-party websites. The inclusion of any hyperlink is not and does not imply any endorsement, approval, investigation, or verification by Carta, and Carta does not endorse or accept responsibility for the content, or the use of such third-party websites. Carta assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided on such third-party websites. All product names, logos, and brands are property of their respective owners in the U.S. and other countries, and are used for identification purposes only. Use of these names, logos, and brands does not imply affiliation or endorsement.

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