HOW TO

This model targets startups aiming to secure multiple rounds of financing, primarily from VCs, with a vision to reach a significant milestone within a 5-7 year timeframe.

• Phased Funding: The VC model provides startups with structured, milestone-based capital, shaping cap table compositions at each growth stage (e.g., Series A to Series B). However, imbalances in equity distribution or premature dilution can lead to „broken cap tables,“ where founders have disproportionately low stakes, making further VC investments challenging.

• Guided Growth: While VCs set clear milestones to ensure startups progress strategically, they also monitor cap tables closely. A well-balanced cap table ensures alignment between the startup’s growth and equity distribution. Conversely, a „broken cap table“ can signal misalignment, potentially hindering the startup’s ability to secure future funding and maintain founder motivation.

When aiming to raise capital, fragmented cap tables can pose challenges in organizing rounds and establishing syndicates, making the funding process more intricate. Proper cap table management becomes paramount, and leveraging the right tools is essential. This has driven ACE to build an automated Cap-table calculation and documentation system that can also reduce 90% of time currently being spent for the coordination of these tables.

VCs firmly believe that an equitable cap table ensures that the founders and the management team are adequately motivated by their equity stakes with key challenges including:

• Erosion of long-term incentives for founders.
• Accelerated loss of company control by the founding team.
• A potential dip in motivation, increasing the risk of founders either stepping back or not pushing boundaries.

However, while VCs meticulously check the health of cap-tables, other investor categories might adopt a more flexible approach.

These include entities like Family Offices, High Net Worth Individuals (HWNIs), Corporates, Private Equity (PE) firms and Corporate VCs.

Different investment models cater to diverse investor priorities. For instance, while VCs might be apprehensive about a skewed cap table, longer-term investors might perceive it as a golden opportunity to acquire a substantial stake in the company.

• Green: Displays the ideal scenario/ what most VCs aspire to see.
• Light Green: Considered acceptable – while not perfect, many VCs might still be open to discussions.
• Yellow: Starts to get tricky – Startups might need to consider adjustments.
• RED: Broken! This is a glaring red flag for the majority of VCs, necessitating immediate corrective action.

The concept of a „Broken cap table“ can initially seem overwhelming. However, with a clear understanding of its nuances and a proactive approach to address imbalances, startups can position themselves favorably for future funding rounds and foster a synergistic relationship with their investors.

The ultimate goal is to ensure that all stakeholders, especially the founders, remain deeply committed to the company’s long-term vision and success.

ACE Alternatives (“ACE”) is a leader in managed services in the Alternative Assets sector like venture capital, private equity, fund of funds, real estate, and more. Leveraging a proprietary tech platform and extensive industry experience, ACE offers 360 degree tailored solutions for fund administration, compliance and regulatory, tax and accounting, investor onboarding and ESG needs. The fintech was founded in Berlin in 2021 and has since established itself as one of the fastest growing alternative investment fund service providers in Europe. ACE is currently used by over 45 funds. In 2024, ACE received seven-figure funding from Bob Kneip to expand into new markets. ACE’s vision is to redefine fund management by demystifying complexities and promoting transparency.