Capshare is equity management software. Basically we’re the plumbing behind keeping track of who owns what in a company and also keeping companies compliant with the requisite laws when they issue equity.
I have a confession to make — I just recently learned what a cap table is. Now, now, before you cast the first stone, let’s quickly run down some things that the vast majority of America knows nothing about: cap tables; that Steph Curry is most likely a divine being sent from heaven above to bless us with three-point barrages, semi-awkward shimmy celebrations, and unprecedented range; that Donald Trump is most likely a troll-based robot sent from hell below to punish us for all of our Twitter-arguing, Facebook-posting, internet-commenting ways; when to stop eating McDonald’s; the correct usage of there, their, they’re; and again, cap tables.
So does previously pleading ignorance on cap tables make me an idiot? Some would say yes because they believe my job is to know all the ins-and-outs of the tech world, ready to explain what B2C and IoT means in the blink of an eye. I would argue no because I don’t want to be known forevermore as the idiot who writes about tech and startups while knowing nothing about either. Regardless of your stance on this issue, I (as any non-idiotic person would do) consulted with an expert on the matter of cap tables: Capshare founder and CEO Jeron Paul.
Before you speak, I already know your first two questions: What makes Jeron Paul an expert on such matters? Why is he qualified to educate us on the topsy-turvy world of cap tables, a world where many have ventured and few returned? Well, those are dumb questions on your part, look who the idiot is now. Paul has extensive experience within the Utah tech and startup community, offering perspective from both the venture capital and entrepreneurial planes of existence. He was a Principal at Signal Peak Ventures (formerly vSpring Capital), where he invested in and interacted with early-stage startups throughout the state. He was founder and CEO of Scalar Partners. And perhaps most importantly, he’s gone on record as (jokingly) saying, “I want to be quoted on this at some point in my life: I’ve made Gavin Christensen into everything he is.”
So, we’ve established Paul’s qualifications on understanding cap tables and also determined that he’s basically the grandfather of Kickstart Seed Fund’s Gavin Christensen, both quality recognitions in their own right. Now it’s time to move onto the subject I should have been writing about five hundred words ago — how painstakingly difficult maintaining a cap table can be.
“A cap table at its fundamental basis is just a register of your shareholders and what they own,” said Paul. “As a company grows and matures, that cap table will become significantly more complicated.”
For an early-stage startup, a cap table is simple. One founder owns 50% of the shares, the other owns 50% of the shares, and nobody loses sleep at night trying to keep track of company equity. As a startup begins onboarding more employees and issuing stock options, things begin to get more complicated.
“Once you issue options, you’ve immediately created a couple of accounting headaches,” said Paul. “They have great tax benefits. They are a huge way to incentivize your employee base, so they are really popular in startups. But the second you issue them, you’ve created some challenges. One, they are typically vested, you need to keep track of how long somebody is vested or whether or not they are vested. Two, the vested shares can be exercised at the employee’s option, so at anytime that employee could come in and slap a check on your desk and say, ‘I want to exercise my shares.’ Then those shares need to be converted legally from a derivative instrument to actual shares.”
Let’s say your early-stage startup has grown from two employees to 1000+. Let’s say you offer stock options to every employee, added incentive to keep them busy and focused at work. Let’s also say that you use the traditional method of maintaining your cap table: the dreaded Excel spreadsheet.
Unfortunately for you, your cap table just became infinitely more complex. You have to worry about tracking who owns what, you have to worry about all of the legal issues that accompany issuing equity, and you have to worry about doing all of this on an Excel sheet a mile long. Not great, Bob.
“In a typical startup, you’ll have a smorgasbord of common, preferred, warrants, options,” said Paul. “It’s not uncommon when you get quite large to start seeing some really exotic flavored instruments, like RSUs (Restricted Stock Units), RSAs (Restricted Stock Agreements), and SARs (Stock Appreciation Rights). You’ll see all these different types of equity incentive tools and they’re just a pain in the rear end to manage.”
So, through a murderer’s row of acronyms, we can begin to understand that maintaining a cap table is no Sunday stroll through the park. How does Capshare tie into all of this madness? By simplifying the process.
“Capshare is equity management software,” said Paul. “Basically we’re the plumbing behind keeping track of who owns what in a company and also keeping companies compliant with the requisite laws when they issue equity.”
Capshare’s platform allows businesses to quickly and efficiently manage their cap table, all within the legal boundaries required by government. Access is granted to all relevant entities (such as law firms and venture capital firms) so everyone — from all sides of the business equation — can monitor the mercurial ways company equity ebbs and flows. This is incredibly valuable to large businesses, where managing a cap table can turn into a full-time job for the accounting department.
For smaller companies, where managing a cap table isn’t as complex, Capshare offers a different value proposition — reducing rates for receiving a 409A Valuation Report, something required by law for businesses of any size. Not only do smaller companies save money on something they are already required to file, but they position themselves for easier equity management down the road.
“That’s a big selling point to early-stage companies,” said Paul. “We can come in and take care of all your compliance, you can get a 409A on us, and we’re going to take care of all your stock issuance and do it with this cool little thing called the Internet. It will all be kept up to date and you’ll never have any compliance issues.”
There’s also an issue of paper. I’m talking actual, tree-made paper. You know, that thing that has pretty much been abolished in the last few years because computers are way cooler and less cluttery. Believe it or not, stock certificates have been and still can be issued in paper form, something that we can all agree needs to go. Capshare provides the digital tools to transition away from paper and into a gentler, paperless present.
“The other big piece of our business, shares in private companies traditionally have been issued on paper and tracked in Excel,” said Paul. “That’s broken in so many different ways and is inefficient in so many ways. Frankly, for half the cost, you can go do it using an internet solution like Capshare.”
To recap, here are the things we’ve learned: on the surface, cap tables seem relatively simple but the larger a company grows, the more complex things become; Capshare provides a simple way to manage a cap table, share that information with the necessary parties, and issue digital stock certificates; paper is bad, digital is good; armed with a wealth of startup expertise and a solid team in place, Jeron Paul is ready to watch Capshare flourish.
“From an accounting perspective, from a managing your shares perspective, if you’re using paper there is no way for you to actually know what the truth is about your cap table at any given moment, unless you’ve built a really nice model in Excel,” said Paul. “Building that model in Excel takes a lot of time, a lot of work, and a lot of upkeep. We just automate all that.”
Published 3/4/2016
