We ran customer discovery with multiple startup law firms and the common pet peeve was mostly one of the following:
Most importantly, prior to any investment or M&A, an investor will require an opinion letter from a startup law firm that performs the necessary due diligence on the cap table and takes on all the liability for any errors. The only way law firms can unburden themselves is to recreate the change in cap table over time and ensure all entries are properly documented. This comes at the cost of both time and money for the founders. Spreadsheets obviously won’t work for this. It has to be a cap table solution.
An example section of a typical cap table when represented on a spreadsheet would look something like what’s shown below. The problem here is that there is absolutely no indication of common vs options, vesting schedule, strike price, grant date, options available, classes of shares granted, and most importantly how the ownership gets diluted when additional capital is raised or when new options are allocated.
At TWO12, we have developed our cap table platform to solve these problems. Our customers track formation, options, notes, priced, stock splits – all over a period of time with the ability to associate documents to each of those rounds on a per-individual basis. We also allow founders to control who gets invited to the platform and how much information is shared with their cap table participants.