Cleaning up your cap table Q&A

Knowledge Base
Tuesday, September 19, 2023

After a certain point in a private businesses’ life cycle, a company’s cap table can become an unruly place. Depending on the nature of the business or the fundraising routes it's taken, there can sometimes be tens of thousands of shareholders, some with minute fractions of equity. This isn’t good for the shareholders or the company. For companies, their founders or their Financial Directors (FDs), it can slow decision making, especially if the shareholders have voting rights, and printing and sending thousands of shareholder updates can prove hugely costly. Meanwhile, shareholders often just want to cash in their shares and get some liquidity. 

Cleaning up your cap table can be a one off event but really it should be a regular feature of running a growing private business. One that allows a company to consolidate its shareholders and offer those looking for liquidity an exit from the business. To hear how the process works and the role Asset Match can plan, we sat down with Ben Weaver, our Business Development Director. 

To hear more from Ben, read his piece on poorly aligned shareholders.

How does a cap table cleanup usually start and when does Asset Match get involved?

Depending on whether it’s a long overdue cleanup or something more periodic, the process will either be scheduled or it starts when a company takes a hard look at their cap table, identifies the number of shareholders they have and assesses whether they need to consolidate. 

Often, this is done behind the scenes before they even approach Asset Match. The company might have a new key stakeholder coming in or an existing one who wants to consolidate. It's essential for the company to be realistic about how they're going to achieve this and whether there’s an appetite among shareholders for liquidity and if there’s not, how they’re going to approach this.

What or who typically kick-starts the decision to consolidate? 

The decision to consolidate can come from various quarters. It could be the founders or the Financial Directors (FDs) who feel the need to streamline the shareholder base. Sometimes, it's the shareholders themselves who might be looking for a liquidity event. It's a "Push Me Pull You" situation, really. The key is that the decision can come from anywhere, and it's about recognizing that there are plenty of options available for both the company and the shareholders.

Under what situation might shareholders decline to partake?

Shareholders might decline to partake depending on the 'drag’ and ‘tag' rules in the company's articles. Usually, a 75% vote is needed for major decisions like this. While companies can't necessarily force shareholders to sell, they can change the articles through a special resolution, which also typically requires 75% of the votes cast.

How does Asset Match facilitate the trading of shares for private companies looking to consolidate shareholders?

Asset Match is a platform that facilitates the trading of shares in a regulated, orderly, and structured fashion. We're not the ones doing the consolidation; we're the engine that helps companies achieve it. Often, companies come to us after they've done the initial legwork.

We then arrange an online auction for the sales of the shares.

How do the auctions work?

We hold auctions over a set time-frame in which buyers and sellers can make their orders. All buy and sell orders, and the indicative price (the price at which the auction would close if it were to close at that moment), are openly displayed, allowing for a true market price that reflects the supply and demand over the course of the auction period. 

Once the auction period is over, our pricing algorithm and matching engine determine the final closing price for the auction and the allocations to buyers and sellers. In short, periodic auctions allow shareholders to sell their private company shares for a transparent market price.

Can Asset Match's platform be customised to target specific shareholders?

We offer a level of versatility and can create bespoke markets. While we don't directly target specific shareholders for consolidation, our platform can be tailored to meet the unique needs of each company.

There’s the potential for the company to have a closed market, where we can essentially withhold information about the actual market cap of the company to the wider public. This can help ease concerns around valuation issues, but an open market is generally more beneficial, because you can bring in more new investors.

Plus, our data shows that the actions of a few shareholders have no bearing on the ultimate value of a company.

Does Asset Match get involved with the legal and procedural steps?

Asset Match itself doesn't handle the legal and procedural steps. Companies need to consult their advisors for that. We're the platform that facilitates the trading of shares once those steps have been taken.

Are there any sector-specific trends in companies that opt for shareholder consolidation via Asset Match?

Not really, but we have noticed that some companies opt for buybacks to reestablish their valuation level, especially if they have a fundraising event coming up. This is more of a market trend rather than anything sector-specific.

How does Asset Match handle multiple-share classes during an auction?

We've had auctions with different share classes. We can host separate auctions for each class. We're flexible in terms of what our pricing is and can accommodate different share classes during the auction process.

What are the communication strategies that companies can employ to make shareholder consolidation palatable?

Transparency is key. Companies must clearly explain why they're opting for consolidation. They can offer liquidity now or invite shareholders to stay on for a potentially larger but uncertain future event. Clear communication makes the process more palatable for everyone involved.

How does Asset Match ensure fairness and transparency?

Our platform is regulated and operates in an arm's-length manner. It's anonymous, especially from the seller's side, ensuring that there's no undue influence during the trading process.

How does Asset Match differ from traditional methods like buybacks?

Unlike traditional methods, Asset Match offers a regulated, anonymous, and structured platform for trading shares. It's an arm's-length process that ensures fairness and can be customised to meet the unique needs of each company. We offer a proven, easy formula that works.