Cap table management is software that keeps the record of who owns what share of a private company. The record is called the capitalisation table, or cap table. It lists every founder, investor and employee who holds shares or stock options in the company. Start-ups and their investors use it.
Consider a start-up in Bengaluru with 10,00,000 shares. The two founders hold 4,00,000 shares each. An early investor holds 1,50,000. The company has set aside 50,000 shares for its employees' stock options. A stock option is the right to buy a share later at a fixed, low price. In India, these options are usually called ESOPs, from employee stock option plan. So each founder owns 40%, the investor owns 15%, and the option pool is 5%.
Now a new investor offers ₹10 crore for new shares, at ₹400 a share. The company issues 2,50,000 new shares, so there are now 12,50,000 shares in total. The software recalculates everyone's share. Each founder now owns 32%, not 40%. This reduction is called dilution. Before the deal is signed, the software can show every holder exactly how much they will be diluted.
The software also runs the employee stock options. Say an engineer joins and receives options on 2,000 shares. Typically, the options vest over four years. Vesting means that she earns the right to them step by step. Often she earns none in the first year, then one quarter after twelve months, and the rest month by month after that. The software tracks this for every employee. It also sends the details to the company's HR and payroll software. This is because when an employee buys the shares, the gain is taxed as part of her salary.
Every new issue of shares must also be reported to the Ministry of Corporate Affairs. The software prepares these records and sends them to entity management software, which tracks the company's legal filings. Investors use the cap table as well. Private market data software reads it to work out a fund's stake. An angel investing syndicate adds its members to it when it invests.