Chapter 14. Capitalization Chart

This chapter covers the topic of a Capitalization Chart, which is a schedule that tracks the ownership structure of a company. A Capitalization Chart (also referred to as a "Cap Chart") is an important, and deceptively complex, schedule that has traditionally received little attention in finance-oriented books and textbooks. As such, I will cover this subject using the financial and valuation models developed over the course of this book.

I address the following specific issues related to Napavale's Cap Chart in this chapter: the "founding" Cap Chart, the effect of an equity investment into Napavale on the Cap Chart and the effect of issuing stock options to employees on Napavale's Cap Chart.


As discussed in chapter 2, Napavale was founded and began operations in the first accounting period (1Q X4) covered by the financial model used in this book. Upon its formation, the founders of Napavale determined their initial ownership percentages in Napavale. This initial ownership structure is captured and described in the founding Cap Chart.

I am assuming that Napavale was founded by three individuals and that each of these individuals received an identical allocation of stock in Napavale upon its formation. As such, each of the three founders received 33.3 percent of Napavale's equity upon the formation of the company. I am also assuming that there was an initial pool of 100,000 shares of "founder's stock." Thus, each of the three ...

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