Startup Funding Espresso -- Problem Signs in a Cap Table

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

The Cap Table is an important part of any diligence process.

In reviewing a startup’s Cap Table, look for these signs of a problem:

• The current team has little equity and thus little incentive to see it through to an exit.
• The Cap Table is complicated with multiple share classes.
• The early rounds came with complex rights and terms including liquidation preferences, ratchets, and clawbacks.
• Founders who left the company still own substantial amounts of equity.
• There’s no options pool which means all compensation will need to be paid out of cash.
• There are too many individuals on the Cap Table.
• Convertible notes, options, warrants, and other items are not listed in the Cap Table but exist in the business. 
• Existing investors retain sign-off rights on additional funding.

The Cap Table is a standard due diligence document so don’t invest without first reviewing it.


Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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