How Cap Table Software Falls Short in Venture Capital Firms
Cap table software isn’t cutting it in venture capital. We know. Bold words coming from a company that makes cap table software, right? Don’t get too excited. This is a corporate blog; we’re not marching in the streets. Nevertheless, let’s take this opportunity to back up our claim. We’ll cover what well-designed cap table software looks like, how it’s failing VCs, and what needs to change to meet your (collective) needs.
Fast Facts on Cap Table Software for VCs
- Traditional cap table software is designed for companies, not investors.
- VCs lose time making up for the lack of communication between cap table platforms, even if each software is individually well-designed.
- Best Practice: Invest in software that makes it easy to control the scope of information (from a single company to your entire portfolio) and the granularity of information (from in-depth intel to high-level snapshots).
How Venture Capital Firms Define Good Cap Table Management Software?
Before we can pinpoint how cap table management software fails to meet the needs of venture capital firms, let’s establish a baseline. What, specifically, is cap table software? What does it do? Answering the first question is easy. Cap table software streamlines the management and monitoring of a company’s equity. That second question is the tricky one. What does cap table software do? The specifics are subjective. We can only tell you what cap table software should do. And we may be a little biased.
Cap table software should be a single easily-accessible source of truth for managing a company’s equity. You can see, already, why this might be a problem in venture capital. What happens when one company becomes one dozen? The idea behind the function we’re describing here, is that everyone who needs access to the software should have it; on any device and without unnecessary complexities. Each step in the process of logging into the platform and navigating to the right information must be quick, intuitive, and smooth. Beyond that—arguably more importantly—the information needs to be accurate. Software that serves as a single source of truth is a big deal. Everyone must work off of the same information. This should go without saying: preventing miscommunication means eliminating misinformation.
Modern cap table software should streamline the workflows involved in managing equity. In the age of modern governance, cap table software has made it easier than ever for boards to approve grants and transfers of stock, stock options, and warrants. It facilitates the electronic signature of certificates and tracks vesting schedules, exercise windows, and expiry dates.
Finally, any good cap table software prioritizes maintenance and reporting. Setting customizable email alerts and notifications—along with the ability to generate auditor-ready reports at the click of a button—is the sweetest medicine for compliance headaches. To be clear: the features and functions listed here make up the baseline set of standards to which cap table software should be held. The best software providers, in our (biased) opinion, should strive to do more.
Understanding the basic palette of features demanded of a modern cap table platform is necessary to understanding why the software is unfit to serve the needs of a venture capital firm.
What Makes Cap Table Software Bad for Venture Capital Firms?
Does the average cap table management software make life easier for venture capital firms? Yes. Easy as it could be? Not even close. Most platforms fall drastically short of meetings VCs’ needs. It’s one thing to build a cap table manager and market it to VCs. Making cap table software for VCs is an entirely different endeavor.
There’s the obvious: VCs manage multiple cap tables; portfolio companies manage one. But venture capital firms interact with cap tables in an entirely different manner than the portfolio companies in which they invest. Different equity holders prioritize focus on different sets of data. In using software natively designed for portfolio companies, venture capital firms are bound to run into trouble.
In portfolio companies, having a single source of truth for managing and monitoring equity is a big deal. But a single source of truth in one company may translate to multiple “single sources of truth” across your portfolio. Therein lies the problem. Easy access to a single, accurate ledger of equity is less appealing if you’re still logging into twelve separate platforms. On top of that, the lack of communication across platforms makes it nearly impossible to view neatly-organized cap table data across your portfolio.
Disjointed access to equity-related data across your portfolio is annoying, to be sure. But the inconvenience of managing multiple log-ins doesn’t hold a candle to the reporting problems this can cause. The worst case scenario often finds VCs manually downloading companies’ data to build reports on their portfolio from scratch. Similarly, relying on multiple cap table management platforms with zero integration brings data visualization to a screeching halt. It’s easy to see the common thread, here. Venture capital firms lose a ton of time when automation between cap table management platforms falls short. Software designed with portfolio companies in mind has no reason to integrate with its peers. This “individual versus the whole” design structure is behind many of the shortcomings VCs find in cap table software.
We’ve already covered the standard features and functions you should expect in good cap table management software. The exclusion of features for venture capital firms was intentional; it’s not part of the baseline if it’s not part of the norm. So, let’s talk about what cap table management software built with consideration for VCs might look like.
Cap Table Management Software for Venture Capital Firms
Given what we know about cap table software failing to meet VCs’ needs, we can imagine the features that form a solution to the problem. Just don’t read up on how EE Invest works yet; we don’t want to spoil the ending. As with identifying shortcomings in traditional cap table software, commonalities in features accommodating venture capital firms will make themselves clear. Most apparent is the emphasis on fluidity in the gap between information on the company level and the portfolio level. Cap table software must be designed to facilitate dynamic as smoothly and seamlessly as possible; in both its interface (UI) and its user experience (UX).
For cap table software to be effective in meeting the needs of both a VC and its portfolio companies, it needs to do a few key things. It must serve as a fully-functioning cap table manager for portfolio companies. It should make no concessions on behalf of the investor. Venture capital firms need a single, always-accurate source of truth across their entire portfolio. Changes at the company level must instantly be reflected at the portfolio level. No more stressing out over version control.
The import and export of data to and from the software must be smooth and simple. Above that, it needs to be fast. This plays an important role in the change management process. Getting over the hump of importing data into a new cap table management platform spares everyone from the biggest drain on enthusiasm in the implementation process. The sooner both sides get to play with their “cool new toy” (translation: “powerful cap table management software”), the sooner they overcome the learning curve impeding an effective roll out. A smooth onboarding process also comes in handy for venture capital firms as they add new companies to their portfolio.
Designing cap table management software that works for both companies and their investors means mastering the flow of data. The ideal cap table manager must give VCs access to the cap tables—including an organized view of key performance metrics—across their entire portfolio at the touch of a button. There’s a certain sense of power in knowing the information you need is right there, at your fingertips. Good cap table software capitalizes on that feeling when designing their investor interface. The data must be easy to navigate at the company level and concisely-organized at the portfolio level. The best cap table software makes it easy to dig down into the data of a specific company and navigate back to a portfolio view without losing one’s train of thought. Regardless of how powerful a cap table manager’s modeling, analysis, and reporting tools may be—if they’re included at all—this flexibility of scope is key. We’re talking about the ease with which key software features allow VCs to “zoom in and out” between company-level and portfolio-level data. If cap table management software doesn’t offer strong modeling, analytics, and reporting tools for VCs (it should), the process of sharing, exporting, and integrating data with the necessary tools becomes essential.
Accessing the information you need at the touch of a button is great. Unless you don’t know which button to press. Cap table management software that does support robust data modeling, analysis, and reporting must provide investors with an intuitive high-level experience without overcomplicating things at a granular level. This is where a deep familiarity with how venture capital firms operate comes in handy. There needs to be some understanding of what VCs need to see to get an effective “snapshot” of a portfolio company’s performance. At the same time, these features must give VCs the power to dig down into the data without skipping a beat. It’s more than simply facilitating smooth navigation in the scope and granularity of data. It’s striking the balance between information effectiveness and overload at each layer of granularity and width of scope.
Finding this balance isn’t something any cap table software provider who suddenly decides to market their product to VCs can do out of nowhere. That familiarity with venture capital firms’ needs doesn’t develop overnight. EE Invest is one of the few equity management platforms built for investors, by investors. We used the most sophisticated, intuitively-designed cap table managers on the market as a foundation upon which to build a powerful suite of equity and portfolio management tools. While it may be our focus, here, the features of EE Invest extend far beyond anything that could be expected of cap table management software alone.
Schedule a demo to learn more about how EE Invest is transforming relationships between venture capital firms and their portfolio companies. Contact us for more information on EE Invest and any other EquityEffect software solutions.