As I mentioned in my post, How A VC Can Change The Cap Table, VCs go through a re-balancing act when they propose a new cap table.  This can be a complicated juggling act as the VC needs to ensure both that all (or most) parties in the transaction are satisfied with the outcome and that the new cap table provides sufficient incentive alignment for key executives.

The most sophisticated entrepreneurs understand the potential complexities of this process and make decisions early in the life of the company that keep their cap tables simple to ensure that viable structures can be realized.

In order to keep cap tables simple before taking VC money, entrepreneurs should try to:

• Only issue common stock (with no special rights),
• Minimize the number of shareholders, and
• Ensure that key managers retain a significant share of the common stock.

Entrepreneurs are sometimes forced to make decisions that sacrifice some of these principles – this can be a necessary evil for building the business.  However, being aware of these considerations can ease the process of acquiring a VC investment.