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3/2017!DRAFT!TLA!Capitalization!Table!Considerations! ! Page!1 ! of!5 !!
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Capitalization*Tables*and*Operating*Agreements*
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What!is!a!capitalization!table?!!
A!capitalization!table!(cap!table)!identifies!shareholders!and!their!percentage!equity!ownership!in!the!
company.!!!A!cap!table!will!also!reflect!change!in!ownership!and!value!over!time,!and!may!include!shares!
for!future!emp lo yee s.!!!For!example,!as!investors!or!key!partners!join!the!team,!the !perc en tage !of!
ownership!will!change!–!but!typically,!com pan y!valuation!increases,!so!the!value!of!that!percentage!is!
much!greater.!There!is!no!one!right!way!to!create!a!cap!table;!each!is!unique!and!reflects!the!nature!of!
the!compa ny .!!The!wrong!way!–!NOT!creating!a!founders!agreement!and!cap!table!or!waiting!until!later.!!
If!you’re!g o in g !to !a rg u e !about!it,!better!do!it!now!when!you!don’t!have!investors!or,!worse,!em p l o y e e s!
(“Mom !an d!da d!a re!figh ting!a ga in”). !
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The!cap!table!and!associated!founder’s!ownership!is!an!area!many!startups!don't!think!about,!especially!
if!the!foun d e rs !ar e!fir st!t ime!entrep re n e ur s.!!F o u nd e rs !ty pica lly!divide!the!compa ny!with!shares!of!
ownership!(or!stock)!and!then!return!to!developing!the!technology.!!W hat!if!a!founder!decides!to!leave!
the!compa ny !or!becomes!a!problem?!!Life!happens,!so!be!ready.!
• have!a!great!honest!relationship!with!your!team!
• completely!discuss!everything!as!clearly!and!honestly!as!you!can!
• put!your!agreements!in!plain!terms!
• at!some!point!you!can!and!should!make!things!legal!and!official!
• bottom!line!-!you!need!partners!you!can!trust!-!no!amount!of!legalese!will!make!things!work.!!
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Three!stages!in!a!company’s!life:!
-!Founding.!!The!co mp any!has! ca sh!from!the!founders!a nd !yo u!get!no!money!out!of!the!company.!!The!
company!will!probably!fail,!you!will!lose!all!the!money!you!put!in,!you!have!lost!salary ,!an d !y o u!h a v e!t o!
find!a!new!job .!
-!Startup.!!The!co m p a n y!h a s!m o n e y,!fro m!investors !or!fr om!sales,!and!y ou!regularly!get!some!of!that!
money,!though!you r!s a la ry !is !lo wer!tha n !th e !market .!!There!is!still!a!50%!chance!the!compa ny !will!fail!
and!you!have!to!find!a!new!job.!!In!addition,!you’ve!lost!the!difference!between!your!startup!salary!and!
BigCo!salary.!
-!Real*company.!!You!get!a!market!rate!salary!an d!it’s!unlikely!the!com p an y!will!fail.!!If!it!does!fail,!you r!
downside!is!limited!to!unemployment.!
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If!you!are!working!for!a!new!company!that!cannot!pay!you,!you’re!a!founder.!!If!you!have!a!salary!on!
your!first!day,!you’re!an!e mploye e .!
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Different!company!structures!handle!equity!shares!differently!and!therefore!cap!tables!vary.!TLA!looks!
to!the!business!lea d!to !dete rm ine !the!be st!co m pa ny !structu re!an d!ca n!p rov ide!ge ne ral!guid an ce!an d!
attorney!referrals.!
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University!warrants!
UA!is!unable!to!hold!equity!in!a!startup!com p an y.!Th e re fo re !the !U A !tak e s!w a rra nt s,!w h ich !p ro vid e!the!
university!with!the!ability!to!purchase!stock!in!the!company!in!the!future!at!a!fixed!price.!The!warrant!
percentage!will!vary,!and!reflects!the!research!value!invested!by!the!UA!into!the!IP!prior!to!license.!This!
is!a!com mon!prac tic e!a mong!un iv er sitie s !an d !re fle ct s!t h e!v alu e !o f!th e !IP ;!if!yo u !h a ve !q u es tio n s !ab o u t!U A!
warrants!or!licensing,!please!contact!TLA.!