This is how cap table can help you with equity management     

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How much is your company worth? If you are not looking to raise money, it might not be important for you. But if you plan to raise funds, soon it will be necessary for your business that the answer to this question is accurate and reasonable. 

Less than ideal estimation can cause a deal with a bad valuation which can be harmful to your business. With correct data at hand, you will have a better understanding of what the potential investors might expect, which will help you plan ahead and negotiate more efficiently.

1. Understanding of ownership dynamics for all stakeholders

Different parties involved in the company’s success have different interests and needs. It is crucial to understand their needs and interests, which are often in conflict with each other. For example, employees will be expecting higher equity, but you might want to negotiate the terms of their stock options even before they start working for your company.

2. Transparency of a company’s value distribution among stakeholders

If there is no transparency in equity allocation process, it can be harmful for your organization in many ways. Misunderstandings among the stakeholders may arise once the value is divided. For example, co-founders might not understand why they need to allocate certain amount of their shares to early employees who they think are already fairly rewarded with their salary and bonuses.

3. Employee poaching prevention

In most cases, employees will not resign only because the company they are working for does not offer equity incentives. However, once you decide to give them a stock option package, it might be necessary for their new employer to negotiate with you as well. This is where cap table management becomes very helpful. You will have data on the number of shares that you need to give away as a package and, on the other hand, a new employer will have data on the total number of outstanding options.

4. Rules for making decisions with voting rights attached

There are many situations in which your company might require a decision to be made by a vote of shareholders. It should clearly state the rule for making such decisions to avoid future disagreements. Cap table is an easy and transparent way of recording such decision-making processes and all stakeholders can monitor it giving everyone equal rights and power.

5. Cap Table Management for Startups

Cap table management is a valuable tool for any company, and startups in particular should consider it. There’s something out there to suit every budget and need – from free web-based cap tables all the way up to custom software that will run on your computer of choice. 

If you need Cap Table Management for Startups as an entrepreneur with no money, then don’t worry about paying fees just yet; some services offer subscriptions at low rates so they are always available without costing too much. 

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