One question sometimes comes up when doing a cap table of the equity in a company.  Should you assume that the stock options are exercised or not assume it?  Do you base it upon what will be at the present time and let future stock option exercises dilute the equity at a later point in time? 

I’ve heard cases made for either way, but I think it’s much better to assume full exercise of the stock option.  You want to give the investors that hold the other stock the most conservative view on their holdings.  By not including the stock exercise, you show a higher percentage of ownership for them in the shorter term.  Then when the shares from the options are exercised there could be disappointment on their part, could they even realize they could get diluted down to such a lower level.

If you have other stock options planned in the near future, over the next couple years, you might want to also put them into the capitalization plans.  Get them approved upfront, so there are no surprises down the road.

What if there is a member of the board or an investor who wants to see where the outstanding shares are right, go ahead and show that as a different view.

Now, perhaps, it may not be material.  Still, we think it’s a good practice to show the whole picture.  Make sure your capitalization table is complete and reflects all the things like stock option exercise or a conversion of warrants. 

By making sure that this area is complete in giving your investors this comfort, their comfort will spill over into other areas of their review of your company.