At the LPGP CFO/COO in Chicago in October, I walked through something we have been building towards for a while: cap table management that runs in the same calculation engine as our waterfalls and carry. This post explains what I showed, and why we built it that way.
Three meanings of “cap table”
Ask three people at a fund manager what a cap table is and you will get three different answers. All three are right.
- The company view. Who owns what in a company or vehicle: ownership, voting and control, and share classes. In qashqade these are capital events.
- The fund and investor view. Who the investors are, what they put in and what they receive. This is the distribution waterfall.
- The GP and management view. Carry, management incentive plans, points, vesting and leavers. In qashqade these are incentive events.
Why they belong together
These three views are not separate topics, instead we view them as one chain. When a company is exited, the proceeds move into the fund and shareholders are paid for their shares, the fund waterfall decides what each investor receives, and carry is calculated from the fund result for the GP and carry holders.
When each view lives in its own tool or spreadsheet, someone has to carry the numbers from one to the next. That is where versions drift, figures stop matching the legal documents, and a simple question like “what does this exit mean for each of us?” takes days to answer.
At qashqade we’re able to deliver the calculations – end to end.
What the demo showed
I followed a capital event through the system, step by step:
- A fund structure with several vehicles and companies at the bottom.
- Adding capital events: entities, share classes, ownership and voting rights
- A realization with proceeds flowing downstream, in the order of the structure, into the fund waterfall, to investors and carry holders.
- Scenario modelling: Our new scenario modeling module allows fund managers to say, “what if”. Plug any value, whether it be a realization or valuation, and see how it affects your waterfall. You can see the money being distributed in every step of your waterfall. I simply plugged in a new realization and a new scenario that I wanted to test. Say we sell another portfolio company and receive a valuation for one more. I then ran those with our waterfall and got results showing distributions with those new transactions and the differences between the original run and the scenario run.
- Reporting: The reporting module allows managers to create reports within a matter of seconds. Simply tell qashqade what vehicle you want to make a report of and select what calculations you want to show. I created a report within a couple of minutes that showed value, both realized and unrealized, for each partner at each waterfall step, GP values, realized and unrealized, at each step, and finally I compared those side-by-side with the scenario we tested.
Why a single engine matters
Because all three cap table views run on the same engine, a change in one part flows through to the next. There is one set of rules, one set of data and one result to explain. It also works for any vehicle structure, including separate European and US vehicles for different investor groups.
Every client has their own calculation mechanics, so we always start by looking at our client’s. However, the main principle holds: one engine for every view of ownership.
See it on your structure
If you would like to see how this works on a structure like yours, get in touch with me for a walkthrough!
