Cork fintech Global Shares has developed a cap table tool to help scaling firms keep track of one of the key issues with managing growth: who owns what?
If there was an Irish-based company today that could write the book on scaling a business it has to be Clonakilty fintech player Global Shares.
An employee-owned company, Global Shares is seeking to increase its headcount from 370 currently to 1,000 by 2024 and in that timeframe hopes to IPO and surpass a valuation of $1bn, bringing it into the ranks of players like Stripe.
“The investor narrative needs to be very clear. These kind of conversations are happening all the time and sometimes end in tears”
Global Shares is one of a handful of companies globally that offers fully outsourced employee share plan management. It provides the administration services through its team of expert share plan analysts, financial, legal and compliance professionals, but also provides a software platform where employees can view, manage and sell the shares they own, online or through an app.
One of its latest innovations is a new capital (cap) table management tool that lets company owners see investor details, percentages of ownership, equity dilution and the value of the company’s shares. Dynamic visuals also help demonstrate change as the company evolves and grows making it easy to track shares, options, share classes and more.
A clear cap table inspires investor confidence
Speaking with ThinkBusiness Derek Gallagher, managing director in charge of Emerging Companies at Global Shares, said that cap tables are one of the key areas that emerging and scaling businesses need to get right.
“If you want your employees to act like owners, you make them owners”
This is because it is essential to understand who owns what and a cap table makes it much clearer and keep track of all of the variables, keeping details transparent for founders, investors, employees and auditors.
Gallagher said that of key concern to growing companies that are seeking finance or equity investment is the ability to present a clear and organised cap table, and unfortunately this is a rock that many firms stumble upon.
A former banker with Bank of Ireland, consultant with Deloitte and head of E-commerce at cybersecurity firm Trend Micro, Gallagher also has gained insight into the entrepreneurial world from leading the International Security Accelerator in Cork as well as serving as commercial director at virtual reality and artificial intelligence consultancy Mavric.
All of these experiences combine to put him in the driving seat for Global Shares’ Emerging Companies business.
“The cap table platform that we have developed is aimed at early stage and scaling companies with anywhere between three and 300 employees.
“One of the most complicated aspects of growing a company is actual ownership and organising shares. It’s complicated and our goal is to just make it simple and transparent.”
I point out to Gallagher that one of the laments of some of Ireland’s most seasoned entrepreneurs is that many new entrepreneurs don’t even know what a cap table is, never mind an MVP (minimum viable product).
“It’s interesting. You get a bunch of first-time founders into a room and talk about the importance of a cap table and they are vaguely interested and nod in agreement that it could be important. But get a bunch of second-time founders into a room and they will all respond that it is critical. That is because somewhere on that initial start-up journey the cap table became an issue or an area where they messed up.”
Not being clear or organised about the matter of a cap table when sitting in front of banks or venture capital investors can often cause an emerging business to falter because this lack of clarity hardly inspires confidence.
“It usually happens in the form of a rude awakening for some founders,” admits Gallagher. “It might be fixable but it’s not always fixable. A key issue is the fact that start-up teams constantly change. Original founders may want to leave, employees may wish to vest their shares. And this happens in more than 50pc of start-ups.
“And what happens when you are raising investment and a would-be investor is willing to give you €500,000 for 20pc of your equity is that the problems become very clear. Because another shareholder or co-founder may have 25pc of the company but is no longer working at the company or contributing. How do you explain that? What if you are valuing the business at €2.5m and you are offering a potential investor 20pc equity, but you can’t explain the remaining ownership in your business?
“The investor narrative needs to be very clear. These kind of conversations are happening all the time and sometimes end in tears.”
Another important part of the narrative is share options are about to become vital to staff retention by Irish SMEs.
While Global Shares’ platform is used by some of the biggest companies in the world – its clients include Italian insurance firm Generali, Krispy Kreme, Cargill, Fujitsu and many more global, household names – to help manage employee share plans and enable employees to view, manage and sell shares, the reality is that on the ground in Ireland share ownership is still at a nascent stage among indigenous SMEs.
But that is changing and various initiatives such as the Irish Government’s initiative KEEP are critical to helping growing firms award shares to loyal, dedicated employees. There is a practicality to this as those employees will not only see their loyalty rewarded, they also have skin in the game and will no doubt play a part in future succession and management buyouts/buyins.
“We’ve got 15 years of experience in share planning and five years of building our own software platform and we’ve taken all of this knowledge and we have simplified it to get it into the hands of early stage companies,” said Gallagher.
He said that creating a way to clearly visualise and communicate a cap table but also to create a share ownership ethos to inspire employees is essential and goes to the very heart of Global Shares’ own culture.
“If you want your employees to act like owners, you make them owners. Often founders of companies are asking the impossible of those early employees and those employees are delivering on the impossible. So, there has to be honesty and transparency that also carries through when it comes to investors too.”
The new cap table tool is already being used by growing businesses in 10 countries worldwide only months since the platform launched.
Returning to the importance of having a clear, up-to-date cap table, Gallagher said that fundamentally it demonstrates investor-readiness.
“But not only that, it allows you to communicate clearly with existing investors if you are taking on further investment and most likely this will have an impact on their return on investment.
“A clear cap table should be able to demonstrate the impact on the value of their shareholding post-transaction,” Gallagher concluded.
“Instead, what often happens is people are left jumping between multiple spreadsheets, creating confusion and discord.
“Our aim is to remove that friction and keep everyone – founders, investors and employees – on the same page through a single, secure login.”
By John Kennedy (firstname.lastname@example.org)
Published: 26 February 2021