Every investor expects founders to have a clean, healthy cap table before starting funding talks. Fortunately, there are resources available to help founders through that complicated process. 

Take it from Anashe Barton, Senior Manager of Customer Success at LTSE. Anashe handles client-facing ops, from onboarding founders, to ensuring they have a fantastic experience with the firm, to guiding them toward the right resources and tools for their platform. 

We sat down with Anashe to dive deep into how LTSE's tools and expertise can guide founders to a place of excellent cap table health. 

“All of these financial steps happen all at once, which is why founders can find themselves really overwhelmed. It’s also why we want to be as helpful as possible to usher them through the process.”

What is the Annual Cap Table Health Check?

Companies change significantly over six months or a year; the cap table does not always capture that.

These changes may include hirings, firings, or fundraising discussions with potential investors. All of those movements have unique needs. 

LTSE likes to set up annual cap table health checks, which often happen right before financing rounds, and they include practice with LTSE's scenario modeling tool as well.

Optimal Time or Frequency for Cap Table Health Checks

If founders are conducting cap table checks on their own, Anashe recommends doing so every quarter so they can sync with quarterly board meetings and new hiring rounds. 

For reference, LTSE tends to conduct annual check-ins for their clients between Q3 and Q4.

They also recommend timing the check-ins for a quarter or two quarters before a raise so whomever you're negotiating with is confident in the cap table's accuracy. It also helps founders understand dilution for the next round. 

For clients that raise consistently throughout the year, LTSE is proactive about maintaining a dialogue with them and lending support when needed. 

“We like to set up that annual cap table health check to make sure that everything is up to date on a client's cap table, so they're ready to go and prepared for conversations with their board or their investors.” 

Resources to Help Founders with a Cap Table Health Check

Even if a founder isn't a client of LTSE, Anashe says LTSE will still happily jump on a call with them and talk through where they are in their cap table journey.

LTSE also has a significant number of resources on its website. 

They publish content for anyone to use; materials like interviews with law firms, founders, and VC firms on anything from raising to managing your equity pool. 

If a founder needs actual legal advice, LTSE partners with several law firms they can refer the founder to, depending on where the startup is with raising.

LTSE also has a tool called Startup Runway, which is a cash management app. 

It allows founders to plan their runways and calculate salaries, employee equity, and operational costs. This is key because calculating runway happens simultaneously with cap table check-ins. (This adds to how overwhelming cap table check-ins can feel for founders.)

Having an External Partner is Essential 

LTSE believes in having a third-party, objective view when performing cap table health check-ins.

You should get multiple takes because your lead investor will have a specific vantage point when setting terms and pricing the round. The lead's perspective is undoubtedly important as they set the tone and are helpful for the rest of the raise, but they're also self-interested. 

In terms of mechanics, there are a million ways to raise a round. LTSE Equity accommodates for all these methods, with the ability to add and remove convertible instruments such as notes or SAFEs to our round modeling tool, but also adjusting pre and post-money valuations or the discounts toward each investment.

Founders often get sucked into a specific formula when trying to avoid dilution, which can be shared from our round modeling tool if founders choose to. That's why adding the legal component and running scenarios through LTSE's tool is even more critical. 

Just as there are many ways to raise a round, there are many ways to exit. As LTSE Equity’s companies grow, they may be interested in modeling liquidation to see proceeds for each of their valued stakeholders in the case of an exit. In collaboration with your legal team or advisors, LTSE Equity admins can save multiple exit scenarios and share with their team to see which liquidation terms leave them in the best place.

“Well, we believe in the idea of having a third party, objective point of view when it comes to cap tables. That's why the legal component running scenarios through that LTSE tool is also important.”

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