Broken Cap Tables
A “cap table” is a schedule of all the shares outstanding for a specific company. Here’s an MBA Mondays post I wrote back in 2011 on the subject of cap tables. If you want to know how much of a company you own, a cap table is the best way to figure that out.
Cap tables are almost always prepared and kept in spreadsheets, usually excel, but also increasingly google sheets. And, it turns out, they are often wrong.
Henry Ward is the founder and CEO of a company that is aiming to fix that called eShares. Last month USV led a Series A round in eShares and my partner John Buttrick wrote a bit about that investment today on the USV blog.
The reason I tell you this is that yesterday Henry wrote a great post about broken cap tables that everyone in the startup world should read. Here are the four big takeaway’s from Henry’s post:
- Most cap tables are wrong
- Most investors don’t track their shares
- Note holders are often forgotten
- Employees suffer most
How does Henry know this? Well part of eShares’ business is converting cap tables from spreadsheets into their cloud based application and reconciling everything to make sure it is correct. They onboard about 100 companies a month right now and they see a ton of cap tables.
Tracking everyone’s ownership in companies is a perfect application for a cloud-based network of owners and issuers. If every company used a platform like eShares, and if all these platforms talked to each other, if there was a common identity standard, then as you move from one company to another over your career, collecting equity along the way, you could access and manage all of your ownership interests in a single dashboard.
This is a service that is incredibly useful to startups and angel investors and VCs. But as Henry outlines at the end of his post, it will ultimately help employees the most. And, as we have discussed here before, employee equity is certainly more broken than cap tables are. Fixing that is a worthy mission for a startup and that is what Henry and his team intend to do.
“Tracking everyone’s ownership in companies is a perfect application for a cloud-based network of owners and issuers. If every company used a platform like eShares, and if all these platforms talked to each other, “I understand the benefit to Employees….I also thought there would be benefit for investors – especially VC type firms….as GPs do quarterly vals….it seems like it would be a good thing if VCs in general valued their investments on teh same basis/value. I understand sometimes it may be more an “art vs science” thing…. and there are probably many times where one firm values the same investment differently for different reasons….still seems like there could be something there.
my partner John’s post talks more about the benefits to VCs and startup companies
Great post by John. Great conversational writing … quick and easy to read and to understand.
he should do more of it
For companies, it would be nice if the investors could stop sending out their data request forms requesting cap table information in their format. It is not a problem when you have one or two investors. But when you have 5 or 10 investors, each with different forms, needing different presentations in their cap tables, it becomes a headache. I never have understood why many investors cannot just ask for the cap table from eProsper or whatever tracking software people use, but insist on their own form.
yesssssssssssi hate when investors make our portfolio companies format information in their special format. its a complete and total waste of time for the startup and the investor ought to have their analysts or associates do it if it is that important (it usually isnt)
It would be great if lead investors more often told other investors what they should be asking for, or agreeing among themselves what to do. Many investors forget that the company often is not going to push back, and forget that each investor is asking for the same amount of stuff. I spent a decent amount of time last month with accounting people trying to figure out which buckets to put stock into for different investor forms, because of slightly different desired slices of information. My company has enough accounting people that we can do it, but it is still a waste of time. We probably waste a half a person day a month or more on various requests across a half dozen key investors.
not uncommon when I talk to people at various companies. And if we mention to our investor reps, they are oblivious to the demands of their teams then say the right things but never do anything about it.
Here is always the problem…….when you push back or refuse you get this thrown in your face:Well X does a great job of this……I think you are not doing a good job. You have to be very confident and doing very well not to just comply.
+100Maybe I should start posting to my blog again.This isn’t limited to investors, it also applies as companies get larger.As you point out its not just cap table but other info.The brain damage this causes company management is huge. Its like fighting with yourself, instead of the competition. Instead of improving something at the company people are left fuming doing TPS reports.I ask departments to just write down in outline form what they did this month. The good things, the bad things, the things they worry about, the things the need to discuss further, things they need to get done next month.No powerpoint, no set forms, just tell me and everybody else what’s going on.People wonder how we get so much done with so few people. This and absolutely limiting internal meetings, increases productivity several fold.The final kicker is that means you can have fewer people which increases productivity further.I have been told once my “forms” (I don’t have any) could be filled out in crayon.When my results come in there is one person smiling and one not, and I have been nicknamed the dolphin.I am amazed at how many people “play” business. To them its all about the looks, not the results.
Great points. I think part of the “reporting theater” is based on legacy without questioning value and that you usually have admin type people (could have lower aptitude or drive) not really giving any thought to the actual point of the reporting. What is trying to be achieved ie”keep me posted on whatever is going on in whatever format you want”.
I have just sent 3 companies I advise and myself for my personal investments to the site to check out.
Extremely useful. I saw you followed him on Twitter and checked him out. I sent the website to Hyde Park Angels leadership team encouraging them to sign up. Also sent to startups I am invested in outside of HPA. Seed investors tend to do a large percentage of their investing in convertible debt rounds. It’s key that cap tables are correct. TechStars and Ycombinator ought to mandate their companies use it. Wish I would have known about this startup on inception, I would have written a check.
thanks for doing that Jeff.
For no great reason I passed on this investment early. Really happy for all involved now. It’s inevitable. Needed, and will be appreciated.
the last time you did that on one of our deals was ……….
Twitter, znga , Foursquare …. I know. Henry has a great biz ahead of him. At time as an investor in AngelList I asked naval to roll this in. Felt a suite of services for founders and angel investors was a natural.
It’s useful for bigger companies too. Spreadsheet attachments of cap tables get sent between business portfolio managers, lawyers and accountants in emails and the multitude of versions of the same document is invariably wrong.In a way what eShares is trying to do sounds like enabling Github versioning for cap tables.
Read this on HN just before you posted and agree that it’s a great post.I was especially amazed by the ‘3-4 months for a stock certificate to be generated’ quote from the highlighted email exchange (~80% of the way down the post). That’s genuinely old-economy (fax machines, carbon copies, etc) type response time, and makes it seem like a no-brainer that there will be quick disruption here.I’m looking forward to seeing eShares progress!
First, Congratulations. I’ve seen some really nicely cleaned-up ones (at lawyer costs), and some really messed-up (and wrong) ones. I remembered reading about eShares a while back on Techcrunch.Curious why didn’t such a service exist a long time ago? That kind of pain is everywhere. Does eShares take on the manual work to clean-up the cap table as part of the on-boarding?
yes they do that. it’s optional. but they do it for many of their clients.
They should strike partnerships with lawyers and enlist them. Same as Docusign and Echosign are facilitating deal closings by leaps and bounds.
This is how eProsper started. SV law firms banded together to develop a solution that worked to make tracking and reporting easy. There a couple of other solutions as well. None of the tools are perfect, but the human issues have ended up the big problems in my experience…poor tracking, just don’t care, lack of knowledge–“oh, I need Board or Committee approval to issue stock options?”
they have done that and had good success with it
Our private investors were not very pleased when we said we will use eShares for share certifications. Since everything was ‘e’ in our company they wanted atleast the certificates to be non virtual 😉
Fred–Curious why this is any different from eProsper or similar services? You can issue option paperwork, manage stock certificates, manage cap tables, etc. It is a genuine question, not being snarky or anything like that. The tools to do this have been around for a long time.The real problems that I’ve seen have been a complete lack of knowledge, organization and management to handle this from company management. Company management typically knows very little about what equity is, how it works, what they are supposed to to with it. I’m generally blown away at the lack of knowledge in responses to basic questions like what a stock option is (much less what an ISO or an NQO is).And then I think the core issue is that company management often just does not care. They view themselves as too cool to bother with the “details”. Start with half-baked, often wrong, vesting terms included in offer letters; lack of follow-through and tracking from management; poor inputting of data into systems that track vesting or excercises; cavalier approach to note issuances; complete lack of concern for angel investors, employees and others when it comes to this stuff. Poor management of data is the problem at its core, not a system.
great question. i could give you a decent answer but instead i’m going to ask Henry to answer it.
Thank you Fred. I would love to hear Henry’s perspective. The people issues are the hardest ones to solve, particularly when you mix in compliance needs–Board approval for option issuances, tax reporting and tracking, etc. Would love to hear how they facilitate making this mess better…said as someone who has stock certificates for my angel preferred deals, but at least two deals where there were stock splits or forced conversions where I still have no certificates in hand so have no idea what I own…
The question is where the truth of the company’s liabilities lie. In Excel, eProsper, or other recording tool the truth lies in the paperwork that has been generated and signed. The software is just a “model” of that truth. This is a double-entry problem. You can only trust the model if you believe it has been recorded correctly.We propose using a public transfer agent model for private companies. eShares is an SEC registered transfer agent and we manage the process and compliance of issuing electronic securities on behalf of privately held companies. When a company issues securities through us we electronically manage the authorization and issuance. There is no separate recording. By definition, if a stock certificate is issued through our platform and accepted by a shareholder, it is a new line in the cap table and everyone looks at the same copy with all the stakeholder verifications. I.e. it is a verified blockchain.That is different than the current system of getting paperwork, redeeming it, asking if your entry is correctly recorded, verifying you were converted, etc…
thanks for stopping by and explaining that Henry
Henry, thank you. Your explanation is very helpful to me and having lived in both public and private company worlds makes a lot of sense. One follow up question if you can indulge me…how does this benefit options and option holders? Options still depend on agreements, which products like eprosper generate, and on accurate vesting inputs. I assume someone also needs to attest to Board approvals as well.Interesting product and I will think about this for my next company.
Henry, congratulations on the company. Having spent most of my time dealing with cap tables in venture-backed companies (analyzing them for potential secondary direct opportunities), I can attest to the fact that many stakeholders don’t really know what they own, and are either reluctant or unable to get updated information on their shares if/when they leave the company.To that end, I was wondering if you are also tracking the liquidation preference schedules for the companies. If not, I think that would be a valuable addition to your services, as many common stockholders don’t understand or appreciate just how buried their shares might be sitting behind significant preference stacks.
CJM – we’ve spent 6 months developing a cap table builder for our reporting users, and it tracks liquidation preference schedules, options, convertible debt etc etc. You may like to take a look, its available over at http://www.reportally.com
Henry, I think you should point that out more prominently on your homepage. This completely changes the value proposition (and justifies your pricing).
I keep suggesting eShares to clients, but so far have not gotten anyone to use it. I might just make it mandatory as a condition of representing startups! 🙂 Is there a standard set of docs that makes onboarding easier for you?
that’s different. Good different, but different.
With regards to your second paragraph, it seems like this system will insure that future fundraising rounds are accurate and transparent, with the parties involved all having a dashboard that accurately represents the interested parties, who was offered what options on future rounds, etc.Plus, it ought to give founders/management a better way to wrap their heads around who owns what, whether they’re compensating/incentivizing their employees correctly. It’ll also highlight any incongruities in the cap table, because it’ll be done properly. Founders can only complete a cap table as well as they understand the underlying math, and I’ve met a lot of founders that didn’t understand this. Had to explain it at my last start-up as I walked out the door…
*this* seems like a perfect fit for the ‘apps on top of block chain’ pattern you mentioned a month-or-so ago…are they thinking about/working on that approach?
we have had that discussiontheir system is already built and in market so it would be an interesting challenge to adapt it “in flight”fred
But if they spend the effort proving the market, someone is going to build that version and disrupt them…would be better if that disruption was internal.
To me the idea here is to spend time locking in as many customers as possible in the existing platform. (At least based on what I know of the situation from what Fred is saying and the concept we are discussing if I knew more I might change my mind.)someone is going to build that version and disrupt themYou have something here where people have limped along with a sucky solution simply because it does what they want and they don’t want to take the energy to find or use a better solution. The time factor. None of these customers (that they lock up) wants to spend more time to improve things just a bit if the current solution works well for them. They have bigger fish to fry.I’m sure you can find examples of similar “satisfice” things that you do.Bottom line: Concentrate on sales for now.
It would open them up to being less defensible of a business – no?
probably but it might also make it easier to build a business and this market. tradeoffs
I don’t think so – if anything it would give them more lock in as 1st player/critical mass.
I must be misunderstanding what you’re saying regarding the use of blockchain.
Someone has to own/manage the process that gets this sort of data onto and off of the blockchain…once it’s there, sure others *might* be able to take advantage of it…but for the most part, the 1st in with scale is most likely going to be the winner.The block chain allows for distributed and decentralized trust…but interacting with it currently is non-trivial and even once it is, it’s still going to rely a lot of business rules and network effects.Right now everyone is focused on the ‘how’ of it all (because that’s all still pretty complex and new)…but that’s actually the easiest part…it’s the ‘why’, ‘when’, ‘what’, and ‘where’ bits that are truly going to define the ‘who’ everyone uses/thinks of around this stuff (i.e. the winners).
Well, eShares makes the differentiation that they actually look at the paperwork to make sure what is listed is accurate – so any other company can then piggyback on that data and create an interface that’s free. The value add then is the ongoing review of real documents – which is really where all services should be generating money anyway. But it would make it easy for companies to migrate to a competitor if that data was all public – and allow potential competitors to know how big the market size is. Good for the end consumer.
So basically you’re saying it comes down to smart execution. 🙂
Fred, can you share a slide from their deck on the size of this (startup) market ?
no, i can’t do that
I wouldn’t assume that the end game is only dealing with this particular market.
Read it yesterday. Very good piece. I think Mark Suster tweeted a link if I recall. A very useful service, in deed.
Shareholder Insite is another company that has been doing this for a while. I believe they’ve gone to market selling into VC firms, and then into their portfolio companies. I know clients include CRV, Benchmark, Kleiner, Sequoia and many others. They were just acquired by Ipreo. (I interned there in college so I follow them).Interesting that the VC / startup world hasn’t adopted these kind of solutions across the board yet, seeing that we’re all so quick to adopt most new technology. It’s such a clear improvement over spreadsheets.
“Employees suffer most” <— thattttt.I’ve worked at startups since 1997 and have never seen a stock certificate… except the one I issued myself when I started a company.More importantly, let’s update the archaic option agreement terms.BTW, I read Henry’s post yesterday, and before I knew who he was or what eshares does, I thought “there’s a great idea for a startup; I should run this by Fred”.And I also saw a competitive product listed on ProductHunt.
Fred, I read this morning’s A VC blog and all the associated blogs andcomments with great interest. The management and valuation of Privatecompany shares is a critical issue and seems stuck in the analog mode. Ibelieve my client, AlgoValue http://www.algovalue.com,has the most elegant solution and is very complementary to the eShares product. Henry Ward knows the company.AlgoValue is an early stage Financial Technology company providing a fully integrated Cloud Based, Software as a Service (“SaaS”) Platform for the Valuation and Management of Shareholder Data of Non-Public Investments. The Company was founded in Israel, and their US offices are in Atlanta, Ga. (NY & SV to follow).The Company’s products allow their clients to:· Analyze, value and audit the value of private companies and non-public securities for tax (409A and ASC820), financial statements (portfolio valuation), and M&A.Perform simulations of equity financing events for Board of Directors and management, including new rounds of financing, grants of stock options and exit scenarios· Easily model every share class of a private company, including preferred shares, common shares, stock options, warrants and convertible debtCreate investment waterfalls for every share class or shareholder that shows the payoff at various levels of company value· Manage and share stakeholder data in real time through an integrated platformHappy to discuss this with you and any other interested parties.Regards,L. Bruce Glasser
I think it’s particularly egregious that employee ISOs cost employees anything at all. ISOs were not created or intended to be an income generator or fund raising mechanism for companies. So to force an exiting employee to pony up $5k…$15k…$60k for their equity OR surrender their equity option (walk away empty handed) when they depart a company is a crime. 1/ it’s a non-trivial cost to most employees2/ the employee put in their time and contribution to the success of the company and vested; the extra burden is tantamount to negating vesting with a F U to boot.3/ the whole mishegas misleads naive employees into believing they are building equity. They’re not. They’re building the right to buy some equity if they have the means.4/ there’s very little employee education on this subject… and every company statement in re options includes the warning “consult your tax attorney and accountant”… which is the company basically passing the buck and admitting they don’t know shit.5/ end of rant… tho I could go on
this is not something companies can fix easily. it’s all tax related. the IRS insists on collecting tax on equity issuances because they view it as compensation. there are many things companies can do to make things better for the employees but it takes an experienced mgmt team and board and a good finance team to execute on these things
IRS, I know. But still makes no sense. I think these rules were created with good intentions, and to address executive high comp trickery. But they inhibit economic growth for the common employee. Despite that, likely perceived as a rich person’s problem by politicians.
Yeah, designed for companies with publicly traded stock. 409A is the devil, and it came out of the option backdating scandals of the oughts. Totally irrelevant to small private companies, but applies to them all nevertheless. Absolutely infuriatingly stupid assinine tax law.
Can you give examples of what “experienced mgmt team and board and good finance teams” are doing?For all I know, the most experienced ones are enforcing conditions like non-transferability unless approved by board, which means employees cant even go out to sell to exercise. Which is further terrible and worse– They must walk away, because most of them wont have the savings required to exercise their options.
You can adopt a contractual bonus plan that simulates the upside of an option, but does not create an unfunded income tax event. The downside is that you have to follow 409A rules, and also the exotic nature of these plans reduces some of the incentive psychology for employees.If your company is taxed as a partnership, you can designate a profits interest plan to award tax-advantaged equity to employees. If properly structured, the profits interest grant is not taxable on receipt, and does not need to be exercised. The employee holds a vested equity interest that can be sold on exit and if held for the requisite period, taxed at LTCG. Downside is that partnership structure is not VC-friendly without a blocker entity (which imposes additional expense and complexity). Also dropping a 60-page LLC operating agreement on your employees can lead to much heartburn.In general, options are sort of the least bad solution. It really pisses me off that there’s no good way to do this, that the IRS perpetuates this fiction that illiquid private company equity comp is income when there’s no exit in sight. It is also very frustrating to deal with VC-backed startups that lean on the option plan framework to disadvantage their employees vs. early founders, refuse to provide information about the company as they would to stockholders, force employees to lawyer up on exercise of the option grants, etc.But that’s life, I guess, and the complexity of our system keeps us lawyers gainfully employed.
Great thoughts. Really what you are describing though is no different than anything that is hidden in the fine print of any situation. With rare exceptions, if the competition isn’t being honest, it can be a huge drawback to be honest and upfront. Everyone does it, the line is only what typically differs.Perhaps you can clarify one thing. With #3 are you saying that when someone is hired and given equity that it’s typical that they don’t understand that they will have to “pony up”? In other words like someone selling you a home repair contract (we have HSA which is great) but not telling you you have to pay $75 for any service calls?
It’s not really a fine print issue. At least you can read fine print. Most companies don’t even provide employees with a copy of the option agreement; just a 1-page addendum to the agreement specific to the employee’s options for them to sign.Sure, most employees know they need to pony up… But it’s not front and center and there’s usually no context provided to assess relative expense of options or valuation of the company.And I think very few employees know what terms kick-in in the event that they leave the company prior to a liquidity event. Then there’s the tax consequences… little clarity there.
Sure, most employees know they need to pony up… But it’s not front and center and there’s usually no context provided to assess relative expense of options or valuation of the company.Well if they know that they have to “pony up” but aren’t demanding to know the details then who is to blame for that? For not asking questions and trying to get better answers?Am I missing something here?And I think very few employees know what terms kick-in in the event that they leave the company prior to a liquidity event. Then there’s the tax consequences… little clarity there.Clarity? That’s on the person with something to lose. This is business. And clarity isn’t good unless it provides a distinct advantage (which it sometimes does for sure). I tend to be very clear when I communicate because I don’t want aggravation following me everywhere I don’t want to have to “clean up the mess”. I don’t want problems I want to be able to sleep at night and all of that. However what I have observed is that you can make more money (once again depending on the situation) by not being so clear and taking your chances.
I don’t think you’re thinking about this from an employee’s perspective. From what I understand you’ve been a founder/owner for some time. Nonetheless, you should understand that employment issues like transparency, fairness, clarity, rights etc are different than “it’s just business” approach you might take with a client or partner.For instance, an employee does not necessarily carry the onus for not speaking up and later carrying the burden of some compensation issue that could have easily been avoided if employer was more helpful. Employees are intimidated (in the sense that they don’t want to risk their position or job by speaking up) and/or don’t know what they don’t know.
You are right.
HR should actually explain how to do this. especially for contractors who have lost options (Eg: me) It’s crazy unfair. I wonder if there is a suit in the making somewhere.
Some companies do a better job than others. Depends upon the size and resources of the startup. Many early stage companies don’t have HR depts.
If I am up to date, what is nuts is that you get taxed on the deemed capital gain on options you have not exercised.Those gains are phantoms until you pull the trigger on the option. To have to cover hard IRS cash calls on phantom gains is patently unfair.
The difference between what they’re worth when you exercise as compared to what you paid (strike price) is taxed as income, not capital gains. Later, day after the stock appreciate, and if you sell, then you would owe capital gains tax. I’m referring to ISOs, which is what most startups issue. Non-qualified stock options are treated differently… worse, AFAIK.
I’ve come around to advising people to use NSO’s. They’re more tax efficient overall (considering both the company and the employee together) b/c the deemed income to the employee on exercise is deducted from company-level income. Whereas an ISO is not tax deductible compensation expense for the company, but is still taxed to the employee (best case scenario, as LTCG if exercised early). Also there are many ways that an ISO can fail and become an NSO, anyways — AMT on exercise; vesting of more than $100k during a 1-year period; 1099 status of contractor; etc.
Zeke – I am sure this is good advice (well, actually, I have no idea) but the idea that you gave me a headache here is the issue.It should be capital gains when you sell it. Nothing else.Sheesh.
You can exercise an NSO early, take the ordinary income hit on ex, then sell the resulting stock and get LTCG on the appreciation. The company can gross up the employee for the dif between ISO and NSO, and the award is still more tax-efficient overall.The fact that this is a headache is not my fault! Blame the IRS!
Maybe I am mis-understanding but I dont think on an ISO you have any tax liability if you dont exercise, and when you do, you only have a possible AMT liability, no short or long-term tax.Isn’t that the point of the ISO ? Maybe I am missing something…
It occurs to me, without much real thought behind it, that this lays the groundwork for an ad hoc marketplace for startup shares. I realize this isn’t the intent but once the data is in one place that place could become a market. As both a founder and a former employee with multiple options agreements I think this would have been incredibly useful, if for nothing more than transparency. Employees are typically befuddled by options deals and often don’t value them as a result. It may also reveal questionable actions by founders….
that is not lost on them or us
Ha! When I thought about sizing the market I wondered why you’d invest. But then that thought crossed my mind and I realized I was sizing the wrong market. Ironically, I train startups in an accelerator and this is a very common mistake!
Sizing the wrong market might be a good blog post- I’m quite certain you have multiple examples. Not only of companies but even more commonly with investors…
i wrote a post about making that mistake http://avc.com/2011/03/airbnb/
From Henry’s blog post:in an oddly reassuring way, the majority of companies fail so most wronged investors don’t become burned investors.This is similar to the paradox or irony of “good” legal advice. Most documents that lawyers prepare for you (and that you sweat over)  never end up being relevant in anyway (there is no conflict to resolve) and almost never end up in court. Consequently any mistakes that the attorney makes does not typically impact the client. Law is analog, computers are digital. Lawyers have a great deal of slack, programmers have almost none (a single “.” in the wrong place can bring the entire thing down..) Remembering all the time it took me to get the perfect agreement of sale crafted years ago and literally none of it mattered since everything went smoothly. And yes I know that legal documents provide more than that in terms of helping everyone know what is expected. So I’m talking about the minutia that is only protecting against the downside risk.
Yes. Like prenuptial agreements. Only needed in worst case scenario.
Re: Henry’s blog post regarding taking 4 months to get certificates:This works because employees have no recourse and influence.Actually, the only thing working against you is time and persistence. If getting the certificates is important enough (it may not be a front burner) and if you annoy enough people (this isn’t DNA testing) you won’t have to wait. Personally, given available time, I actually enjoy this type of game. Basic human nature is unless you press so hard that the other side wants to spite you, people would rather just get you what you want so you go away rather than continue to give you excuses. It’s a fine line. The person with the most tenacity typically wins.
Henry: There is something paradoxical about funding companies building virtual reality, autonomous drones, and Bitcoin markets, using Excel and paper certificates.What I also find amazing is how people (who have the money) being unwilling to come up with bespoke solutions to solve a problem. In other words if a free or existing solution doesn’t exist, instead of paying someone and rolling their own programming solution (and solving the problem), they keep limping along with crap. We aren’t talking about the Saabre system here or building your own photoshop. It’s basically data and organization.What Henry is doing is great and is needed (apparently) and will solve a problem. The question is why are people using excel to keep track of this type of thing once it gets to a large enough scale that it pays to simply pay someone to whack together a simple solution that caters to the exact data requirements?
Great idea & likely a great investment.Area of finance black magic. Shedding light & simplifying will make Henry v successful.21st century pretty cool – view from where this post was typed.
Given your experience with the biz media this week, it must be nice to break this news on your own terms — on a Sunday.
The awesomeness of “cloud cap table” is well argued from first three points. The last point of “employees suffer most” seems pretty forced and trying to exploit the emotions around employees suffering. Employees suffer most because they cant afford to buy their equity, companies are taking much longer, 8-10 years for liquidity, to the effect that most employees are leaving their equity on the table.Unless you make it explicit that eventual goal for “cloud cap table” is to offer secondary trading, “employees” problems are not super well served here.
Great service, but pricing seems to be a bit off, especially for seed rounds with lots of small investors and or option grants. A monthly SaaS like fee would work better for us, especially in light of free (mium) competition like https://captable.io . That said, I am glad products like this finally happen. Managing cap tables definitely becomes a nightmare fast.
Martin – I agree completely. Which is why we’ve set ours out as a flat $15 per month – and free if you only have 1 equity round! Not bad eh…it’s over at http://www.reportally.com (and for the next month the whole thing is open for free)That being said, I really like eShares integration into 409a, which, for us in the UK, isn’t as pervasive an issue.I also think this should work straight out of the box – the whole industry needs to do better at this – but just because the calculations and terminology may be complex, doesn’t mean the users should be subjected to the same pain…Anyway, delighted to see more people active in this space – competition is always a good thing – and I wish eShares and USV great luck with it.
Managing this process sounds like a nightmare.I do wonder why founders do not put employees first. The 4 actually bothered me quite a lot – with the right toolset, all of 4 is basically excuses – and apparently there are more of the right toolsets every day for someone (from lawyers to actual founders) why is 4 actually happening?
Years ago in the dot-com era I worked for a big name startup. I turned down “equity” figuring there was fine print I didn’t understand. I chose straightforward compensation that I could count today.As the company grew, they opened a London office, and brought me out to help with scalability. I went out for beers with the CTO who I’d known since their New York days. He pulled me aside & whispered to me. “Sean, I’m a millionaire now!”. I offered my congratulations, and he asked why I hadn’t taken equity. I explained that I thought there were “known unknowns” to quote Rumsfeld & that I didn’t have a finance background.Fast forward another few months, the dot-com meltdown happened. Then it got really ugly. He had a tax bill over 100k, on stock now worth pennies.Could I have foreseen all that? Nope. Is paper different than cash? Yep.
Having been in category #4 too many times, I truly appreciate the need for clarity on the cap table of a company, or even a small ventures. I would like to see “mini-contracts” for a common objective, where you receive equity which you can track over time.
Probably a lot of “spreadsheet” apps that are going to be good candidates for cloup apps ….
I’m delighted to see more interest in this space; and awesome validation by having a world-class investor like USV get involved. We’ve been ploughing this furrow for some time in the UK – and welcome eShares as competitors, as well as any other innovators in this arena. It can only be good for the end user: startups, early stage investors etc…Feel free to check us out at Reportally.com – we have a slightly different value prop to eShares – but still pretty similar.
ironically, better could make a lot of money because time is worth a lot