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What is a clean cap table? And why it's probably not what you think it is.

Published: Dec 10, 2023

Contents

• In the past, a ‘clean’ cap table meant fewer investors
• A clean cap table is one with no toxic debt or founder over-dilution
• An SPV or nominee company groups investors
• For investors, an SPV or nominee can be a good solution
• A ‘syndicate’ rewards a lead investor – but there’s an easier way
• SeedLegals makes it easy to handle large numbers of investors
• We have 50 shareholders on our cap table
• Watch video: What is a clean cap table?

Sometimes customers message us saying they want a ‘clean cap table’, and to do that they want to set up a Special Purpose Vehicle (SPV) or nominee structure to reduce the number of shareholders on their cap table.

In fact, a ‘clean cap table’ isn’t that you have few shareholders, it’s that the founders have the majority of the shares and that you don’t have toxic convertible notes or investments.

Here’s how to achieve a clean cap table that keeps your company looking investment-ready, and avoids investors blocking your ability to run your business.

In the past, a ‘clean’ cap table meant fewer investors

In the old days before SeedLegals, people wanted fewer shareholders. Nowadays, services like SeedLegals and e-signing have changed everything. On SeedLegals, your cap table is digital – you can create, sign and send share certificates.

A clean cap table is one with no toxic debt or founder over-dilution

• No toxic debt: Loans become toxic if your company isn’t going to be able to pay it back.
• No toxic convertible notes: Convertible notes can be toxic if they give an investor too much of the company.
• No investors owning a huge chunk of the business: New investors want to see that the founders are still in control.
• No investors with a big liquidation preference on an exit: Certain shares allow investors priority on getting their money back.
• No super voting rights: Early-stage startups should avoid giving investors super voting shares.
• No ex-founder who still owns a big chunk of shares: Departed founders holding equity can be a red flag.

What does a healthy cap table look like?

Investors want to see:

• straightforward shares (ordinary or preference)
• ability to have their say in the company proportional to their investment
• no nasty surprises at the next round

An SPV or nominee company groups investors

Using a Special Purpose Vehicle (SPV) or nominee to bundle shareholders can simplify your cap table.

For investors, an SPV or nominee can be a good solution

SPVs can help manage a group of co-investors but can add unnecessary overhead for founders.

A ‘syndicate’ rewards a lead investor – but there’s an easier way

A syndicate allows a lead investor to introduce other investors. With SeedLegals, you can set up the syndicate easily without needing a separate SPV.

SeedLegals makes it easy to handle large numbers of investors

You can choose terms such as giving smaller shareholders non-voting shares, using ‘You snooze, you lose’ clauses, or grouping them in a Rollup.

We have 50 shareholders on our cap table

At SeedLegals, we have around 50 shareholders on our cap table and use our own cap table management tool to keep it clean and easy to read.

Watch video: What is a clean cap table?

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