If you have ever considered running a small cap company or small cap investing then you should understand how a simple cap table can simplify the complexity of complex mathematics. A cap table is simply a spreadsheet that computes the different financial results of your small cap company once you have carefully examined all the individual shareholder and debt issuer information. In startups is simply a spreadsheet that calculates the different financial results of a small cap company after you have carefully analyzed all the individual investor and debt issuer information. Many small cap companies have “formula” that they use for allocating capital and as a result their financial statements are very complicated and do not have a set method for calculating the different financial results. This is because the actual numbers that would be used to calculate these results are almost impossible to deduce from the current information.

startups is why most of the “experts” out there will recommend simple cap tables because this eliminates all the complications involved in calculating the different financial results. However, as stated before the actual numbers used in these valuation methods are almost impossible to deduce from the information that is available to shareholders and to individual investors. This is why some small cap companies go months or even years without using a cap table or indeed any form of cap tables at all in order to reduce the size of their financial reporting.

So what are cap tables anyway? A simple cap table is simply a spreadsheet that you can use in order to quickly evaluate the financial performance of a small cap company at various points in its history. This can be extremely useful during the early stage when a company is being established and there may be relatively low liquidity and / or very low sales. startups of this exercise is to quickly determine whether the market will accept this company, in which case a quick exit strategy might be necessary.

To perform a waterfall analysis you simply need to first determine the historical price of the stock and then plot it on a line. startups can then use one of the following filters: Historical Market Pronation (HMP), Historical Volatility (VTV), or Cap Space to limit the search to a certain area. Next, you need to identify the start date for your analysis. The end result should be a line that represents the highest price paid and the lowest price earned by the stock during the period.

The next step in performing a cap table is to determine the total number of authorized shares. This is typically done by dividing the start price per share by the total number of authorized shares outstanding. Next, we need to plot the average price per share over the period.

The final step in performing a simple cap table involves looking at the effect of dilution. Dilation refers to widening of control in a market by selling all or a portion of the available authorized shares. If a company is trading with only a few million shares, a large dilution can have a major effect on price. Therefore, a good cap table will consider historical price-per-share figures as well as the effect of dilution when determining the value of future securities. This is also a great way to determine if an investor is locked into an expensive stock or if the shares are undervalued.

Once all of these steps are complete, the investor can plot a line from start date to current day end on the chart to determine the price change. A negative slope on this line indicates that the stock has lost value since the start date. A positive slope indicates that the stock has gained value since the beginning. An investor would do well to buy early stage company stocks at start-up and sell them at a profit once they have built up some equity.

It should be noted that there are many different types of cap tables available, and each one will serve a slightly different purpose. This means that investors using different types may come across as being “brick and mortar” versus “online”. However, regardless of which type of cap table you use it is essential that you understand the basics of how they work and why they are important to both new and experienced investors.