Anyone who owns shares or options in a private company instinctively knows that cap table management remains frustratingly analog. At USV, we own equity interests in more than 50 companies. For many of our portfolio companies we own three or more securities. The collection and management of this information is a thankless task but critical to our business.
Almost every company in our portfolio manages its cap table in a spreadsheet (Google, Numbers, Excel, etc) and communicates that information via email. At the end of each quarter, we have the fun job of nudging the busy management teams of our portfolio companies to provide a current cap table so we in turn can accurately report our ownership positions to our limited partners. The whole process feels like snail mail and is prone to error. Not to mention the process of collecting and storing stock certificates in a third party vault, even though no one except our funds could really offer these outmoded pieces of paper as evidence of a legally valid ownership position.
Of course, once a company goes public this information is all neatly arranged in a brokerage account. You don’t have to ping Google’s CFO or treasurer to confirm how many shares you own or calculate your fractional ownership position or try to triangulate a valuation. Why is that not the case with private companies? Why can’t investors log onto an account that has up to the minute information on our private ownership positions, as well as information on recent changes in 409A and other valuations?
Employees who own options have their own set of problems but have no interest or training in keeping track of option agreements, vesting schedules, 409A valuations, exercise mechanics, etc. This in turn places an unwanted burden on our portfolio companies and their law firms, and is unfair to employees.
Fortunately, a number of companies are bringing technology to bear on this problem. We think the leader in this space is eShares, which was founded by Henry Ward and Manu Kumar at K9 Ventures. On Friday, Henry authored a great post on the subject of broken cap tables: https:[email protected]/broken-cap-tables-bbf84574a76a. In October, Andy Palmer, an early eShares investor, also wrote an excellent post from a user’s perspective: http://blog.koalab.com/2014/10/02/did-the-lawyer-lose-your-stock-certificate/
We are excited to announce that we recently led eShares’ Series A round, joined by our friends at Spark Capital and investors from eShares’ seed round. One of my New Year’s resolutions is to get most if not all of our portfolio companies to adopt eShares. Now that we have played with the eShares platform, we wish this had happened yesterday. More importantly, employee option holders of our portfolio companies will also be thrilled even though they don’t yet know how much they will benefit from the ease and transparency of eShares’ solution. Like many software and cloud technologies we now take for granted, we will soon wonder how we lived without it.