Capitalization Table – Definition

Cite this article as:"Capitalization Table – Definition," in The Business Professor, updated March 8, 2019, last accessed October 25, 2020,


Capitalization Table Definition

A capitalizaton table is a document that collects information on a company’s capital stock. Information contained in this document includes investors’ details, date of acquisition, number of shares and their percentage ownership. In essence, it is a spreadsheet that contains common shares, warrants, preferred shares, the owners of the shares, and the prices investors paid for these securities.

A Little More on What is a Capitalization Table (Cap Table)

The contents of a capitalization table are contained in a spreadsheet. The list will have names of the investors of a company sorted by date of investment. The founders will be listed at the top and ending with the latest investors. The columns will have:

  •         Contributions from the investors in dollars
  •         Number of shares investors have bought in different investment rounds
  •         Percentage ownership of every investor
  •         Investment dates
  •         Issuance of premium. This is a cost incurred with the purchase of shares by an investor to ensure previously acquired shares are not diluted. It can also be said to be the difference between newly bought shares and the nominal value of shares an investor buys.

This table should also show preferred shares and stock warrants/options (shares that remunerate employees). The table should also contain the total amount of money collected in each investment round. Lastly, the document may contain other sources of financing available for a startup such as loans.

The cap table allows investors to understand how the capital structure of a company has evolved and dilution or the loss of shareholding percentage with each investment. The investor also uses this information to project the effects that future rounds of investment will have on the capital structure and how much amount an investor needs to put in to get a good pie. It also shows how what dilution an investor may face if the project kickstarts but needs to close rounds of investment to reach success.

In general, a capitalization table is an investment tool that lets investors analyze a company’s distribution of shares and to forecast the future to estimate the worth of an investment.

For instance, in a startup, the investors will control all the social capital. In such a case, the founders can maintain up to 90 percent of shares. As the startup grows and expands, the founders should maintain up to 70 percent of the shares. However, if the founders have a very small piece of the pie, they may be demotivated into developing the business more. The investor will also need to check if the company has a large share of dead equity; this means shareholders who hold large percentages of a company’s ownership but are not part of the day to day running of the company.

If the cap is excessively fragmented, it might be a distraction for entrepreneurs. If there is a high number of investors who have to be consulted before a decision is made, it becomes difficult to move forward.

The cap table is not only important to new investors but also to the founders and early investors most of who are involved in the day to day running of a firm. These initial investors look at the cap table when they need to make important decisions.

Finally, the cap table needs to be updated periodically to show whop the investors in a company are and what percentage ownership they hold.

References for Cap Table

Research on Capitalization Table

  • The capitalization, amortization, and value-relevance of R&D, Lev, B., & Sougiannis, T. (1996). Journal of accounting and economics, 21(1), 107-138. According to GAAP, R&D should be fully expensed in financial statements mainly because of objectivity, reliability and the value-relevance of R&D cap. To examine the value-relevance of R&D, this paper estimates R&D of a number of public companies. It finds that, these R&D estimates are statistically reliable and make economic meaning. It also finds that adjustments on R&D estimates are value-relevant to investors.
  • Dual class firms: Capitalization, ownership structure and recapitalization back into single class, Amoako-Adu, B., & Smith, B. F. (2001). Journal of Banking & Finance, 25(6), 1083-1111. The paper looks at the changes that have been experienced in capitalization and how it has affected the control of dual class firms. The paper observes that combining with family interests with large controlling shareholders leads to dual class cap. The paper has also documented disputes between shareholders to show any governance problems. Following these disputes, most investors have no interest in dual class equity.

The negative impact of R&D capitalization: A value relevance approach, Cazavan-Jeny, A., & Jeanjean, T. (2006). European Accounting Review, 15(1), 37-61. This paper looks at R&D capitalization. It tests the value-relevance of R&D cap reporting in 197 French firms. The study finds that capitalized R&D is negatively linked to stock returns and prices. This negative effect shows that investors are concerned with and actually react negatively to R&D cap. It also showed that companies that choose R&D cap are few, have high leverage and are less profitable with only a few growth opportunities.

The association between financial accounting measures and real economic activity: A multinational study, Guenther, D. A., & Young, D. (2000). Journal of Accounting and Economics, 29(1), 53-72. This paper examines cross-country differences in accounting standards and how these differences affect relations between real-economic value-relevant events and financial accounting earnings. Accounting earnings in the UK and US were found to be closely related to economic activities wit7hin the countries.

The right role for multiples in valuation, Koller, T., Goedhart, M., & Wessels, D. (2005). The right role for multiples in valuation. This paper observes that discounted cash flows are more efficient when assessing the value of projects but that the discounted cash flows can only be as accurate as the forecasts that aid them. A look at different cash flows from different firms will bring to light underlying forecasts.

What do we know about capital structure? Some evidence from international data, Rajan, R. G., & Zingales, L. (1995). The journal of Finance, 50(5), 1421-1460.  This paper looks at factors that determine the capital structure of a business by analyzing decisions made by public firms in developed countries. The paper finds that firm leverage is fairly similar in almost allG-7 countries. It also found that factors that affect capital structure in the US are similar to those that affect capital structure in other countries. However, the underpinnings of the correlations show that there are lots of unresolved issued.

Corporate governance and bank capitalization strategies, Anginer, D., Demirguc-Kunt, A., Huizinga, H., & Ma, K. (2016). Journal of Financial Intermediation, 26, 1-27. This research paper analyzes the relationship between bank management and capitalization strategies. The paper found that shareholder-friendly governance is associated with lower capitalization and shifting of risks towards finances. The paper linked high capitalization with high values of executive option.

Growth and Finance: What do we know and how do we know it?, Wachtel, P. (2001). International Finance, 4(3), 335-362. This paper looks at the roles played by the financial sector in developing the economics of a country. The paper looks at the increased interest in explaining the growth of firms and how the financial sector is contributing to the growth of firms.

What affects the implied cost of equity capital?, Gode, D. D., & Mohanram, P. (2001). The paper examines the cost of equity capital in a sample of firms between 1984 and 1998. It found out that the cost of equity capital is associated with risk factors such as return volatility, earnings variability and leverage and is negatively affected by analyst following.

Small capitalization companies: what does financial analysis tell us about them?, Dwyer, H. J., & Lynn, R. (1989). Financial Review, 24(3), 397-415. This paper analyzes accounting information and accounting ratios for a number of companies with the aim of answering some questions on financial ratios. It seeks to explain the differences in financial ratios of small and large companies, explain how these ratios affect stock prices and the implications of these ratios to investor decisions.

Dual class firms: Capitalization, ownership structure and recapitalization back into single class, Amoako-Adu, B., & Smith, B. F. (2001). Journal of Banking & Finance, 25(6), 1083-1111. This paper examines changes experienced in capitalization and the control of dual class firms before and after IPO. It shows that when family interests are combined with large controlling shareholder, dual class capitalization is realized. The paper also looks at disputes within firms, especially between founders and investors, and how these disputes affect the governance of a firm. It explains the decrease in interest on dual class equity and why more firms are moving towards single class equity.

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