Most startups have about 10 million shares of common stock. As the company grows, so will the number of shares. Because this high number only increases over time, it’s important that you have CAP table management to easily view and interpret shareholder equity.
But what are CAP tables, exactly? How can you choose between the two most common types of CAP management software? Read on to answer these questions and to understand the ins and outs of equity capitalization rates.
What Is a CAP Table?
To understand what a CAP table is, you first need to know about equity capitalization. ‘Equity’ is defined as the value that would be returned to shareholders if your company paid off all its debts and liquidated its assets.
A company’s equity capitalization rate (ECR) shows a relationship between your business income and the equity of the investor. This metric is critical because it lets you showcase the cash return at the time of acquiring a property.
CAP table is a shortened form of the phrase ‘capitalization table.’ This is essentially exactly what it sounds like- a chart or spreadsheet that showcases a company’s equity capitalization.
The primary purpose is simply to track shareholder equity ownership. However, these tables also include a list of all of your company’s equity ownership capital (EOC). Aspects of this include:
- Common equity shares
- Preferred equity shares
- Percentage of ownership
- Convertible equity
- Warrants
- Debt
- Convertible debt
- Derivatives holders
These tables usually come in the form of spreadsheets. This makes managing them manually difficult and extremely prone to human error. Luckily, there are now CAP management tools that make this process much simpler and more precise.
CAP Table Management Tools: A Rundown
CAP table management is an automated alternative to manual spreadsheet building. You can integrate these technologies with other accounting software to automatically track and record shareholder equity. Tables automatically update after every round of new investment since it’s connected to your pre-existing stock management plan.
These tools let you see investor details including the percentage of shares that they own. Assuming that you select a top-notch tool, CAP tables for startups make it easier for new businesses to visualize where your company is and where it is going.
However, to reap these benefits, it’s critical that you choose the right management software for your startup.
Carta and Pulley are the main CAP table management technologies on the market. These consistently top-rated platforms make your business both more organized and more scalable. However, they are built slightly differently and allow startups to access different features.
The Pros and Cons of Carta
Carta is a CAP management software that works with over 17,000 companies. They offer equity management as well as valuations (such as 409A valuation services). They therefore offer multiple different plans to help startups succeed.
They have your back whether you want free but restricted CAP table management or starter/growth plans. These paid plans include valuations, scenario modeling, custom reporting, and many more services. Carta also offers a Scale service for larger companies so you won’t be forced to switch providers as you grow.
Some of the greatest advantages of Carta include:
- Multiple supported platforms including Windows, SaaS, and both iOS and Android mobile devices
- Business hours (for phone calls and online chats)
- Online support
- Electronic security software features
- Training documentation including webinars
- Multiple services in addition to equity management (board/compensation management, financial risk management, reporting services, fund accounting, investment management, etc)
- Ability to integrate with other popular accounting software (i.e. Quickbooks)
However, it also has some disadvantages:
- A yearly pricing plan rather than a monthly one (making it more difficult to scale)
- A lack of a free trial of SaaS services
- Not supported on Mac or Linux
- Difficult to manage for startups with hypergrowth
- 15 days for 409A valuations (longer than usual)
Ultimately, Carta is ideal for many companies that want simple, no-frills CAP table management.
The Pros and Cons of Pulley
Pulley was founded in 2019, so it’s a more recent startup than Carta (which was created in 2012). This means that it has less experience and therefore fewer features, but it is still growing and will likely develop these features in the future. It also resolves some pain points that the company previously saw in Carta users.
Some key benefits of Pulley are:
- Exclusive to equity management with no other services (more specialized and targeted service that gets high-level development and attention)
- All of the same equity management features that Carta offers plus management of both public and private equity
- Quicker and more accurate onboardings- only 24 hours (compared to 90-day Carta onboarding)
- Audit-ready 409A valuations with 5-day response times
- Comprehensive reporting with separate, easy-to-analyze line items
There are also some downsides:
- Exclusive to equity management with no other services (while this can be beneficial, it also can be an issue if you want multiple services for your business)
- Only supported on SaaS platforms (no Windows, Android, or iOS-specific applications)
- No business hours, only online support
Pulley is a great choice for hypergrowth startups that need something highly scalable and fast-growing.
Pricing of Carta vs Pulley
Many businesses make their SaaS decisions based on pricing. This makes sense- after all, startups need to save however they can.
Pricing for Pulley is much clearer. They have a monthly subscription fee of about $100 per month for every 25 stakeholders. For a small business with about 50 people, you’ll be paying an estimated $3,500 in the first year.
Carta’s pricing is much less clear. It varies from business to business and you’ll need to talk to your sales representative. This is off-putting for many startups, but it can also be a good thing- the service is flexible.
Neither has an inherently better pricing plan than the other. Rather, it’s all about what you value when making financial decisions.
Get Started With the Top Accounting and Tax Services
Choosing the right CAP table management software is essential to keeping your shareholder equity calculations accurate and easy to interpret. Both Carta and Pulley are great top-rated services, and what’s best for your startup is completely needs-based.
Now that you know the pros and cons of Carta vs Pulley, it’s time to get started. Our team is committed to helping you with CAP table management, tax preparation, monthly accounting, and more. Contact Pasquest Partners to schedule a free 20-minute discovery call to discuss your company’s individual needs.