What they don’t tell you about Cap Table Vehicles
A Cap Table Vehicle (sometimes known as a 'Roll Up Vehicle') is a legal entity with the sole purpose to consolidate smaller ticket investments into a single line on the cap table.
I remember when I first heard about this use case. Founders started using our standard SPVs but without carry or anything that made it an investment vehicle.
I thought “This is stupid”: How is reducing the number of lines on a cap table from 50 to 10 valuable at all? I mean, it’s the 21st century, we can handle much bigger databases. Plus, there are great tools on the market like Carta specifically designed for addressing cap table management which these founders were also subscribed to.
It turns out I was wrong. We used CTVs for our funding rounds in Vauban & they were unbelievably valuable for. I think most startups should consider using one as part of their fundraising strategy for the following reasons:
It’s incredibly valuable to have the consent of smaller investors proxied into 1 vote. Fundraising is hard. When everything is finally coming together, there is nothing worse than having your round held up by one or multiple smaller investors who might be indisposed, on holiday, not checking their email or even something worse.
2. Round Dynamics
As a friend of mine would say, “Unlike in public markets where your company shares are priced by the last buyer, in VC it is by the first”.
During fundraising, you come across a lot of smaller investors who are ready to write checks, but you can’t accept them before you have landed and set terms with the VC that will lead your round. It’s a “chicken and egg” timing issue that prevents you from accepting smaller ticket investments while the iron is hot.
Think of a CTV as a new (and much better) letter of intent. You send investors a link and they can easily invest in the CTV in a few clicks. The money is not quite in your company yet (it is in the CTV) and investors can still technically pull out, but in practice they very rarely do. As the money is out of their bank account they feel mentally committed to investing in your company. This is exactly how Ulric and I used a CTV in our last round and managed to collect millions of dollars before we had secured a lead. It’s like having a bucket where you can collect tickets as you go.
3. A plan B
We have even seen multiple instances where founders open a CTV, ultimately fail to find a lead investor, and close a bridge SAFE round with just the CTV money and some existing investors follow-on. In this current fundraising environment where VCs are taking longer to close rounds, or raising the bar on milestones to hit before they are interested, having another route to raising funds is quite helpful. Successfully raising a CTV is also a great signal to VCs. Showing that your customers, partners, community or angel investors are all committed is both validating for you and potential lead VCs.