A Capitalization Table, also known as a retained cash table, is a table giving an accurate analysis of the percentages of ownership, total equity dilution, value of preferred stock, and other ownership percentages in any round of financing by owners, founders, and partners. A Capitalization Table may be used to compute the weighted average time period for the initial public offering (IPO) or the floating period. The purpose of this table is to aid in the selection of the best funding source for any business venture. Capitalizing on the current financial health of the company can help avoid too large of an initial public offering. As soon as the potential funding is identified, it should be determined if the business has the ability to raise funds from private sources. If financing is obtained from a third party source, the percentage of ownership should be calculated in relation to the total number of shares of preferred stock issued.

This is the only category of the Capital Tabulations which will be constant during the course of financing. The actual percentage of ownership of the company after financing will depend on a number of factors such as the amount of cash raised, the price per share of the common stock and the ongoing dividend rate. There are certain advantages in using the capital table. For example, new investors have no influence over the percentage of ownership until the shares have started trading. Also, when an underwriter or financial advisor provides information to the CEO on a potential deal, it is recorded on the balance sheet as an expense.

The capital table enables the CEO to calculate the amount of shares required for the acquisition of a particular business. It also shows if the price per share of the common stock is sufficient to fund capital expenditures such as fixed assets and variable costs. The exact amount of shares should be determined to avoid diluting the available option capital. Options can be traded individually and the CEO may choose to purchase additional common shares or exercise certain stock options.

The option prices displayed on the capital table must be specified in the applicable option contract or the equity trading platform. In addition, the option prices must be exclusive of the statutory fees and the cost of any commission. Once the CEO has determined the amount of shares needed to finance a acquisition, he can place an order with the underwriter to sell additional shares. The total shares sold will be determined by the risk premium and the net asset value of the business.

To facilitate liquidity and reduce the complexity of determining appropriate funding amounts, startups frequently use the cap table. In the cap table, startup companies are represented by a capital structure with one for common shares and another for preferred shares. The most liquid type of capital structure is the one with the preferred shares owning more than the common shares. This ensures that the startups do not default on their payments. The capital table is also important for startups considering international markets because they cannot obtain required financing through local banks.

In addition, startups use the exit waterfall and base cap table sheets to calculate the funding they need to acquire in order to satisfy the cash flow requirements during operations. The exit price is equal to the present value of the stock multiplied by the number of shares times the total capitol (not current) times the total funding that can be raised. The base capital table sheets calculate the funding requirements based on existing ratios of assets to equity and total capitol to market cap. For startups with significant start up costs, the exit/cap table spreadsheet is very useful. The spreadsheet compares start up costs with expected exit costs and adjusts for assumed rate of return.

After determining the funding needed and the capital structure required to support operations, investors make a list of startups with potential for growth and determine if they fit the description of a market leader. If investors see one startup in the top 10% of capitalization, they assume it is the market leader. The remaining startups are then ranked according to factors such as financial valuation, management team, business plan, industry experience, competition, management team, valuation, geographic location, sales revenue, technology and industry experience. The final rankings are based on these factors. In short, the formula uses numbers to determine which businesses are growing at the highest rate.

To determine which companies fit into the top 10%, investors use the transaction advisory spreadsheet. Transactions are separated into two categories: ordinary transaction and preferred transaction. Ordinary transactions involve two shares for each new capital investment and two shares for each existing capital investment. Preferred transactions only require one share for each investment and do not count as a capital investment. When determining the market leader, investors use the transaction advisory spreadsheet as a guide. The spreadsheet shows exactly how many shares should be added or sold to move the company closer to the market leader.