Startups Should Expect More From Equity Management Software

Published on September 21, 2022

Most equity management software isn’t doing enough for emerging companies – and the marketplace at-large. Equity Management 3.0 encompasses a holistic, evidence-based methodology that can make fundraising better for startups, investors, and attorneys.

Equity management is as important as any other function of a business: sales, marketing, product development, you name it. Managing details around diligence, employee equity, and legal documents is key for fundraising, and brings together all three major parties of the entrepreneurial ecosystem: startups, investors, and attorneys.

So why, then, are most of the equity management tools on the market just….fine? Fine, as in checking a lot of the basic boxes of equity management, without actively making life easier for startups and their teams.

Nearly every company’s sales and marketing departments live within a robust customer relationship management (CRM) software like Hubspot and Salesforce. Migrating and maintaining customer data to these CRMs takes work, but companies understand the importance of tracking deal flow and converting leads. 

The status quo in equity management software is, frankly, more underwhelming. Startups have grown accustomed to cap table software that’s really just a digital spreadsheet with some math calculation and a few user permission options stacked on top of it. These glorified record-keeping systems don’t help guide startups or fully automate the equity management process. 

Existing tools aren’t working hard enough for startups that need to manage day-to-day operations and navigate fundraising efficiently. This leads startups to siphon off thousands of dollars to outsourced legal administration and grunt work. Investors watch their funds go straight to diligence preparations, instead of meaningful company-building activities like hiring and scaling.

Equity management software should be just as robust and cohesive as Hubspot or Salesforce: a center of operations for fundraising, diligence, equity, and legal documents. The next evolution of equity management software helps ensure data accuracy and makes it easier for companies to manage their cap table and documentation at scale. 

Startup founders and their teams are busy, and might not know that there are better solutions available. But there is software out there that fully automates equity management – not just pieces of it – and provides appropriate access to the right documents for the right people, ultimately streamlining the fundraising process. Startups, investors, and lawyers are all so busy that they might not realize there’s an easier, better way to not only collaborate, but get from term sheet to close.

The current state of equity management software

A lot of equity management platforms say they automate equity management. They’re really just automating individual parts. Most tools out there offer digitized cap tables, but don’t truly provide a single, fully-integrated hub for equity and legal diligence, from start to finish. 

When these tools don’t do enough, individuals take it upon themselves to handle execution of documents manually: effectively taking a step backwards and increasing risk.

Here’s how the equity management marketplace looks right now:

Equity Management 1.0: Manual Management

This typically involves a cap table within a static spreadsheet, and completely separate documentation organized into desktop folders. Gleaning insights and sharing information isn’t easy, and no documentation is directly tied to the cap table. There’s also very few controls and little process around document creation, storage, and review. It’s difficult to share information and scale operations because nothing is automated.

Equity Management 2.0: Basic Digital Foundation

Here’s where most of the equity management software options fall today. These tools tend to contain a digital cap table spreadsheet, multiple data rooms, and the ability to add e-signatures to documents. All of these things are necessary elements. The problem with 2.0 platforms is that’s it. That’s where functionality ends.

There’s not a single, secure data room with customizable permissions to get the right documents to the right people. There’s some automation, but a lack of deep connectivity from the data room to the cap table. With 2.0, startups don’t have robust customer success teams leading them through the fundraising and due diligence process.

Many users stay in the 2.0 universe because they’re comfortable with it, or there’s a lack of awareness of the next evolution.

There’s a next evolution of equity management software

What if equity management wasn’t scary, overwhelming, or time-consuming? What if it enabled startups to raise money without major friction and headaches, and gave them more time to focus on hiring, scaling, and leaning into their mission?

Startups can take charge of their documents and data. Lawyers are increasingly ready to collaborate on the startup’s preferred platform. Investors are broadening their understanding of the equity management market as more sources of capital bloom. We’re all in this together, and better equity management software helps everyone.

Equity Management 3.0: Helpful Holistic Workflows and Automation

The third iteration of software makes it easier to keep a clean cap table. It provides workflows, education, and built-in electronic signatures, all in one place. Rather than just addressing the cap table and basic document storage, like 2.0, the software helps ensure each entry into the cap table is backed by (and even linked to) the right documentation and data. Everything’s in one place, meaning better reporting and an unprecedented confidence that the cap table is right, from the start.

As startups hire new talent, their equity is captured, as promised. There’s less manual data entry, and grants with pre-populated board consent are queued up automatically. The cap table is kept up to date with each transaction, and there’s a single, secure data room with every document linked and organized, automatically. Advanced permissions allow everyone secure access to only the documents they need. Scenario modeling capabilities – grounded in real data – become pro-forma for future fundraising rounds. 

When startups move through each fundraising round, everything they need is right there! Investors are pleased with minimized risk, and attorneys can focus on fundraising negotiation. 

This is what equity management is all about, right?: simplifying the venture financing process for entrepreneurs by empowering them to handle standardized legal documents, diligence prep, and day-to-day operations on their own. 

What does the future of equity management look like?

There are exciting possibilities once startups, investors, and attorneys adopt the most current method of equity management.

The Next-Gen Corporate Operations Platform

Once corporate records are accurate, an equity management platform could truly transform into a corporate operations platform. Think back to Salesforce or HubSpot, but for corporate ops. 

Compiling corporate records data into a single, secure platform opens up the potential for a marketplace where more business transactions can happen. Accuracy of corporate data will entice vendors to offer their services to companies through the marketplace. Startups could handle payroll, health insurance, liquidity options, and more, all through a single pane of glass. 

More startups would be empowered with the resources they need to grow and scale. When opportunity increases, everyone wins – whether you’re an early- or late-stage startup, an attorney, or an investor. 

Players across the startup landscape must take steps toward next-gen corporate ops, ditch the status-quo, and look for equity management software that actually does its job.

Jason Furtado is a contributor to Grit Daily and the Founder/CEO of Shoobx, the fast-growing company providing automated equity management solutions for venture-backed startups. Before Shoobx, Jason was a product manager at Endeca, where he turned a prototype into a new line of business worth $25M in revenue. Jason holds BS and M. Eng. degrees in Computer Science from MIT.

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