Cap tables are a valuable tool for a close look at the equity capitalization within your organization. But relying on static spreadsheets makes it difficult to gain a comprehensive, real-time view of your capitalization structure. Sifting through spreadsheets manually and reconciling disconnected systems are both time-consuming and cumbersome.
For private companies wishing to model likely scenarios during multiple rounds of investments, using more efficient ways to manage cap tables is key. By using waterfall analyses, automating processes to reduce reliance on manual data dumping, and adopting a cap table management solution, you can save time while relieving stress for your team. Here, we discuss the top three reasons why spreadsheets miss the mark for cap table management.
1. Increased Clarity
Waterfall analyses provide a visual model for a wide range of scenarios. When you own or manage finances for a private company, they help plot out key hypotheticals. For example, if you were to sell your company at a certain price point, how much capital would you gain, and exactly how much would investors in your organization receive? With a waterfall, you can clearly see the way that costs are outlined.
A cap table analytics tool will perform a waterfall analysis that cascades the amount of money that each shareholder would receive if all the company’s assets are cashed in. It bases its calculations on assumptions to determine the percentage of who owns what.
Shareholders will receive calculations based on data that has been input into the model. But after several rounds of financing, the calculations can become complex, factoring in various sources of funding, initial public offerings, mergers and acquisitions, and other transactions.
After outlining multiple scenarios through waterfall analysis, you can determine the final amount that each owner will receive upon exit. It’s critical that these calculations are accurate so that each shareholder receives the right amount. Considering the complexity of cap tables, this is not always an easy task. Using waterfall analyses ensures this is done in a controlled, robust environment.
You can create waterfall charts in recent versions of Microsoft Excel, but its capabilities still leave much to be desired. Reasons why the application hampers the process of creating waterfall analyses include:
- Setting totals is labor-intensive.
- Being bogged down with clutter around and on the chart.
- No ability to display relative contributions in percentages.
- Lack of difference highlights.
- No vertical Excel waterfall chart.
- No subtotals.
- Confusing process of scaling multiple charts.
2. Streamlined Analytics
Countless organizations use Excel sheets to perform cap table analytics–but this is far from ideal. While it is understandable–and tempting–to use Excel, it’s not a viable long-term solution for several reasons:
- Version Control. Sending documents back and forth between stakeholders puts the accuracy of figures at risk.
- Complexity. As the company grows, so will your cap table. Without automation, it will require time, an eye for detail, and advanced Excel skills to be able to keep track of all the right inputs.
- Compliance. Because cap tables are a legal requirement in the U.S. and around the world, it’s necessary to ensure they’re correctly done in order to comply with applicable regulations.
3. Reduced Errors
Trust takes years to build, moments to destroy and forever to rebuild. Relying on manual processes to update constantly changing data greatly amplifies risk of human error. So, it’s critical businesses take steps to ensure that cap tables are current and correct.
One easy method of ensuring accuracy is adopting a cap table management solution. With software like Certent Equity Management, you can save significant time and effort compiling your organization’s documentation, cap table, and reporting requirements.
Certent Equity Management is an equity management software that can perform the most complex cap table/waterfall calculations, all in an auditable, controlled environment. It provides:
- Detailed, robust, and simplified calculations.
- Multiple types of adjustments.
- Audited calculations.
- Controlled environments.
- Precise results.
With the help of waterfall analyses, your cap tables will contain clearer, streamlined, and more accurate data.