The cap table is the most critical element in an investment deal between a VC company and potential portfolio company. It defines equity ownership and investment stakes for a company and sets forth how holders are compensated. And yet, it might also be the most misunderstood – and frequently wrong – piece of the deal as well.
This week, we are offering a remedy for the confusing and error-prone capitalization table: A free application that will build tables for investment-backed companies. It will allow equity holders to see their ownership in common and preferred stocks and other securities, calculate how ownership changes under different scenarios, and analyze convertible interest rates. All of these features are available under the free model – a few more bells and whistles come with premium accounts. Click here for the full list of features.
The cap table, which details equity ownership and debt obligations at a company, spells out who owns what in a company, how they are compensated, and what happens to those ownership stakes under different events. A good cap table can provide more information than any marketing material or website. Many people first realized that the music sharing site Spotify had huge potential when TechCrunch found its cap table.
The new cap table is a logical extension and development of the applications we have worked on over the years. When DocDep started two years ago, our only offering was online software that would organize documents and make them easy to share. But as we’ve grown, we’ve learned that the true value of what we provide is not in the virtual file cabinet, but in the giving people the ability to make their information clear and accessible. In short: to make it useful. The cap table might not seem like the most pressing issue when you have fires to put out, but a good cap table utility that can prevent some of those fires from flaring up in the first place.
In Mark Suster's recent blog post "9 Women Can't Make a Baby in a Month", he quotes Bruce Dunlevie of Benchmark Capital: "Good judgment comes from experience, but experience comes from bad judgment." That could really be the motto at DDC. We're trying to take some of the wisdom we've learned over the years from the entrepreneurial school of hard knocks and share it with new start-ups so they don't repeat the same mistakes entrepreneurs make all too frequently.
Starting a company is a herculean task that requires tremendous ingenuity, adaptability, and stamina. Entrepreneurs tend to be eternal optimists who see the world as their personal oyster. And while they tend to be unstoppable visionaries, they can struggle to stay organized and focused on the more mundane elements of daily operation.
Lack of corporate governance or internal organization is a silent killer for many new companies. It begins small but grows rapidly as the company expands, becoming a systemic problem that impacts enterprise value, something no exit-hungry CEO wants to think about.
While there are many helpful resources available that discuss ways to improve your pitch, create a rock-star business plan, or hire a dynamite team, an often neglected aspect of corporate success is document management. It may not be slick and sexy like an awesome corporate video, but it speaks to the heart health of your company.
So here are the top 5 document management mistakes entrepreneurs make.
We're so small that we don't really need to worry about it.
Then now is precisely the ideal time to address the issue, while it isn't really a big problem. It is so much easier to start out on the right track than to course correct later in the game.
We're so busy we can't focus on it now.
Do you think you're going to become less busy any time soon? Probably not. In fact, the problem will only get bigger the busier you get. It is best to address it while it is not out-of-control. And if you really are too busy to address it, consider outside resources or consultants to help rather than ignore the issue altogether.
We're too back-logged.
This is really a cry for help. It's an admission that there is a problem, punctuated by hanging your head in defeat. The reality is that ignoring that back-log doesn't make it go away. As we like to say at DDC, "The best time to plant a tree was 20 years ago. The second best time is today." There is no sense in beating yourself up that you didn't address your company's document management needs sooner, but rather than perpetuate the situation, solve it.
We're in the middle of due diligence. Now is not a good time.
On the surface this looks like a legitimate reason to avoid the issue, but document management is really at the heart of due diligence. In fact, you will have to get your corporate ship in order for due diligence. Why not kill two birds with one stone?
So what are the document management mistakes you've made or that you've seen others make? What wisdom have you gained in the process?
Philly Startup Leaders recently posted several videos from Founder Factory 2010. One of the keynote speakers was DDC's own Farid Naib. In case you didn't attend the event, here is his entire talk on "Ideation". You can also find a helpful summary of some of the key points in a recent blog post 5 Tips From a Serial Entrepreneur. (note: Farid's talk begins at minute 15:15)
Monday we recounted our experience hearing an experienced venture capitalist advise entrepreneurs on how to organize their key documents for potential investors. At FundingPost.com’s VC and Angel conference in Philadelphia, Jeanne Sullivan of StarVest Partners commented that accessing due diligence materials in a single online location, rather than email, made it easier for her team to evaluate a company and determine whether or not to fund it.
Today, we’ll expand on this idea with another five reasons that your business plans and financial spreadsheets are crying out for some organization.
1) Control of the Information
Who gets to see what? Sharing insider information on e-mail means that there might have to be a lot BCC’s and forwarding of just selected portions. This could get aggravating and with one slip-up you could be sharing the entire corporate strategy with an outsider.
2) It looks Unprofessional
So a VC firm is interested in seeing your earnings projections and sales targets. Are you just going to forward a half dozen Word and Excel files and let them sort through it? It would be far easier to simply put these data on a secure server where it is better organized and sorted by date and content.
3) The Problem with Attachments
We guarantee it: Start archiving your business documents and important communication simply by email attachment and you’re going to end up with a Word Perfect file. Good luck opening that.
4) It Could Hurt the Company’s Valuation
Venture Capitalist Pascal Levensohn summed a core principle of entrepreneurship with the line “Good governance is good business.” His white paper expanding on that notion warns entrepreneurs that sloppy or disorganized document management can depress an IPO value or even scuttle an acquisition.
5) It Could Hurt Relations with the Board
It won’t just be clients and backers who are put off by bad document management. A disorganized – or non-existent – record-keeping system could frustrate your directors. They are trying to understand how your business is performing and what the goals are for the future. If they can’t see the important, relevant documents easily, then they won’t be able to help guide the business.
We understand that it is easy to just let Gmail or Outlook hold your important documents and communications. But if you believe your marketing plan is valuable or that your corporate strategy has some great ideas that you don’t want the wrong people to see, then you should take some steps to protect and manage them.
DDC’s BoardPortal provides that crucial protection and management. BoardPortal is a secure, professional web-based service that protects and organizes corporate documents. It also helps manage communication and scheduling with corporate boards and offers executives the power to grant and deny access to whomever they want, so there’s no need for mass emails or forwards.
Interested in moving your important files out of the dungeon of email and into a productive space where they will be protected, searchable, organized and visible to the people who need them? Click here to learn more about BoardPortal.
A new look deserves a celebration and in our case a blog. As part of the kick-off of the new website, Document Depository Corporation (DDC) is also launching its first ever blog, the Sounding Board. As the name suggests, this is a place to share information about issues facing businesses today and to find strategies for becoming more successful. Regardless of a company’s size, from start-up to multi-million dollar corporation, every business wants to succeed. DDC is part of that solution, finding ways to help you organize, communicate, and prepare for what your future holds, and the information you’ll find on our blog is just one way we can help point you in the right direction.
We have some great topics coming up, including lessons learned from a web redesign and 10 reasons to get your important documents out of your email folders. Along the way we’ll also share the story behind DDC and some words of wisdom from our CEO, Farid Naib, who is himself an experienced entrepreneur, investor, and board member. Stay tuned! Good stuff is in store.