Our Value

The Capital Lifecycle

The Capital Lifecycle is different for every company, but we all have similar opportunities for financing and employing capital. The path to success isn’t straight. CapControls has services, reports, and experience that can help you manage each stage of the Capital Lifecycle.

Seed and Angel Capital

Planning is the key task here. Shareholder records can be kept in Excel without too much danger, but you need to model the terms of current and anticipated financings. It is almost impossible to undo a bad deal, so think it through carefully while you still can. Our planning tools are available at no charge or for very low fees at this stage of development. Contact us to find out how you can use these tools.

Sweat Equity

This is what the founders get in return for the business idea and the initial pre-funding work done to validate the concept, write a business plan and make initial progress with product and customers.

  • Capital Structure: All common stock.
  • Level of cap table complexity: Very low – able to do on one piece of paper.
  • How does CapControls help you? Overkill for now.

Friends and Family

Unless your family is rich, this is “walking-around money” to let you continue to get the company ready for a larger financing.

  • Capital Structure: Still all common stock typically.
  • Level of cap table complexity: Very low – still able to do on one piece of paper.
  • How does CapControls help you? Still overkill for now.

Angel round (A)

This might be a $250,000 to $1,000,000 financing designed to let you start building your product or service, hire some people, and get some customers.

  • Capital Structure: Preferred stock or convertible debt.
  • Level of cap table complexity: This is getting more complicated, but not too bad yet. There will be a liquidation preference, but maybe not a dividend or a redemption.
  • How does CapControls help you? You could use our modeling tool to model your
    ownership after this and subsequent financings. Our planning tools are available at no charge or for very low fees at this stage of development. Contact us to find out how you can use these tools. You still don’t need the full-blown system with investor-level detail.

Option plans

You offer employees a stake in the upside with an Incentive Stock Option plan or an equivalent restricted stock or SAR plan.

  • Capital Structure: This brings much more complexity to your cap table, since options are vesting every day. You now have a dynamic cap table.
  • Level of cap table complexity: You’re entering the big time now of entrepreneurial finance. You’ve made promises to investors and employees that must be managed carefully. You have a fiduciary responsibility to maintain accurate records of each person’s ownership or option position.
  • How does CapControls help you? Our system provides you with planning, management and reporting capabilities. In addition, this system allows you to see the effect of the option plan and future financings on your ownership position and ultimate payout.

Vendor/partner warrants

Similar to stock options, except that these are given to outsiders for value delivered.

  • Capital Structure: A defined strike price for a set time – allows the holder to profit from an increase in the value of your company above the strike price.
  • Level of cap table complexity: One more thing to manage.
  • How does CapControls help you? We add this to your cap table and store a scanned version of the warrant for you.

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Interim Financings

Planning is still important, but your shareholder records are becoming more complex. You have many documents to manage (securities agreements, executed and canceled option agreements, investor suitability questionnaires, etc.). The production of management reports for your Board and cap tables for your investors and lenders is becoming burdensome. Excel is a dangerous tool, since it looks precise, but contains no checks and balances to ensure accuracy. Our software keeps your records in a due-diligence ready state and produces reports that reflect well on you and your management team.

Angel round (B)

Depending the trajectory of your business, this is either an up or down round.

  • Capital Structure: Same as the A round – preferred stock or convertible debt.
  • Level of cap table complexity: You now have two sets of liquidation preferences and an option plan that vests every day. You can no longer calculate your position in your head.
  • How does CapControls help you? We show you where you are today and allow you to model potential financings to see where you are headed.

Institutional Round (C)

Much more complex, since these investors are more sophisticated and making larger investments.

  • Capital Structure: Liquidation preference and redemption will be driven by a cumulative dividend that may increase over time. Participating preferred gives investors a double dip that can be mitigated with participation caps. Got that???
  • Level of cap table complexity: This is entering calculus territory. Your spreadsheet will soon catch on fire.
  • How does CapControls help you? This is what we live for. Our system was built to translate all those complex terms into the universal language of entrepreneurs – dollars. We do that for where you are today and help you see where your current structure can lead you.

Sub-debt

This is debt with an equity kicker. It’s less expensive than equity in terms of the targeted return, but more expensive than bank debt.

  • Capital Structure: It’s really a note with a separate warrant agreement or conversion feature, so in essence this is two securities.
  • Level of cap table complexity: This is entering calculus territory. Your spreadsheet will soon catch on fire.
  • How does CapControls help you? This is what we live for. Our system was built to translate all those complex terms into the universal language of entrepreneurs – dollars. We do that translation to dollars for your current position and help you see where your existing structure can lead you.

Management carve-out

You’ve had a stumble or two along the way and management will have to perform a miracle to get any upside from a sale of the company, yet you need them to stick around to make that happen.

  • Capital Structure: Essentially, you give management a liquidation preference that allows them to get paid incentive compensation of an agreed-upon amount prior to some or all of the investor securities.
  • Level of cap table complexity: One more thing to manage.
  • How does CapControls help you? We’ve built a carve-out tool into the system – we’ve made it easy.

SARs or Restricted Stock

Another incentive compensation tool. In reality, there is no ownership impact from SARs (stock appreciation rights), which deliver incentive compensation in relation to the performance of the stock. Restricted stock is real ownership, but the two types of plans are often used for the same purpose – to give employees some upside over a period of time to incent long-term performance.

  • Capital Structure: A number of shares is allocated on a per-person basis.
  • Level of cap table complexity: One more thing to keep track of.
  • How does CapControls help you? We’ve built SARs and Restricted Stock tools into the system – we’ve made it easy.

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M & A / Sale of Business / IPO

Whether you are buying, selling, or going public, your cap table needs to be accurate. In
addition, if you are selling and taking part of your price in the form of a private company’s stock, you need to know their cap table is accurate. CapControls supports you in either situation.

Acquisition #1

Your company is buying another company. Typically your stock will be at least part of the value you deliver to the seller.

  • Capital Structure: You will deliver a preferred stock for the equity portion of the deal.
  • Level of cap table complexity: Yet another preferred stock with unique features and timing.
  • How does CapControls help you? Not only can we help you keep track of the new preferred series, but with our cap table, reporting tools and ability to illustrate projected outcomes, you will demonstrate your professionalism and high level of organization to the management of the target company.

Recap

This is where you take some chips off the table. Instead of a financing where all of the money goes into the company, some of it goes into the owners’ pockets. Now you can swing for the fences without the fear of living under a bridge if it turns out you have warning track power.

  • Capital Structure: Variable – depending on whether the investor has a controlling
    position.
  • Level of cap table complexity: Actually, for the first time your capital structure is fairly simple again. The recap has wiped out all the complexity of the old financings and has a fairly simple structure, perhaps even common stock if the recap investor owns a majority of the company.
  • How does CapControls help you? You still have an options plan and investors,
    although not as many. You will be so at ease with the CapControls environment,
    you’ll probably want to keep using it. Also, our fees at this point are a rounding error to a big, profitable company like yours. The real value comes later when you sell the company, especially if you skip this intermediary recap stage.

Acquisition #2

Your company is buying another company. Typically your stock will be at least part of the value you deliver to the seller.

  • Capital Structure: You will deliver a preferred stock for the equity portion of the deal.
  • Level of cap table complexity: Yet another preferred stock with unique features and timing.
  • How does CapControls help you? Not only can we help you keep track of the new preferred series, but with our cap table, reporting tools and ability to illustrate projected outcomes, you will demonstrate your professionalism and high level of organization to the management of the target company.

Sale of the business

The end of the rainbow! However, to get your pot of gold many things need to happen. You must deliver a clean cap table to the buyer’s due diligence team for their review. Every shareholder document (do you have all the canceled option agreements?) must be available for review. The buyers must be confident that they are not walking into a shareholder lawsuit after the closing.

  • Capital Structure: There will almost always be an escrow, the distribution of which is subject to accuracy of the representations and warranties you’ve made to the buyers. That escrow may be for 10-20% of the gross proceeds and scheduled for up to a three-year payout.
  • Level of cap table complexity: As long as the cap table is complete and accurate, not complicated at all.
  • How does CapControls help you? When you use our service properly, you will have a complete and accurate cap table. The other piece of great news here is that we have an escrow partner (an $80 billion trust company – Reliance Trust Company in Atlanta) that can handle your escrow. Because of their familiarity with CapControls, your escrow process is smooth and seamless when CapControls and Reliance collaborate.

IPO

Congratulations! You’ve done a lot of things right to reach this stage.

  • Capital Structure: Will change completely after your IPO.
  • Level of cap table complexity: You’re in a different game now – a simpler structure, but with many more shareholders. You’ll use a transfer agent in this new world.
  • How does CapControls help you? When your CapControls system is up-to-date, you’ll provide an accurate cap table to your underwriter. This will save you a great deal of time and money and make your underwriter happy.

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Payment and Escrow

The pot of gold has arrived! But, it needs to be distributed in a timely and accurate fashion.
Since your cap table is accurately depicted in CapControls, you’ve taken the first step. But, if you have an escrow provision or more than a few shareholders, you also need an entity that can securely hold the money not distributed at closing and get it to your investors as prescribed by your agreements. CapControls has partnered with Reliance Trust Company (an $80 billion trust company in Atlanta) to provide a Payment and Escrow Service that addresses these needs and that is completely focused on private companies and their investors.

  • Capital Structure: Not much structure here other than the escrow agreement.
  • Level of cap table complexity: Not a factor any more.
  • How does CapControls help you? We deliver an accurate cap table to Reliance Trust, as described above, or the trust company of your choice.

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