Equity management software keeps the company's record of who owns what, the cap table, and runs the share plans through which employees receive equity. For finance it does a third job: it calculates the expense that share-based pay creates and produces the reports that the accounts, the auditors and, for a listed company, the regulators require.
What it does
The cap table records every share, option, warrant, convertible note and SAFE, by holder and class, and updates as rounds close, grants vest and instruments convert. Scenario modeling shows how a new round or an exit would change ownership and what each holder would receive. Plan administration issues grants, tracks vesting and exercises, and gives employees a view of their holdings.
The accounting follows. Under IFRS 2, an entity recognises share-based payment transactions in its financial statements, including transactions with employees settled in cash, other assets or its own equity instruments. The vendors listed below name the US GAAP counterpart, ASC 718, as a report their software produces, and several list 409A valuations among their services.
Who uses it
Finance and the controller's team own the expense and the reports. Legal and the company secretary keep the register and the board approvals. HR and reward teams run the plans and answer employees. Founders and boards use the cap table and scenarios when raising money.
The parts a typical product has
- The cap table: holders, share classes and every issued instrument
- Grants, vesting schedules and exercises for options and restricted stock
- Convertible notes, SAFEs and warrants through conversion
- Scenario and waterfall modeling for rounds and exits
- Share-based payment expense and disclosure reports
- Employee portal and grant documents
- Valuations, either built in or through a provider
- Liquidity events such as tender offers
Where it meets other categories
Grant and vesting data flow to and from payroll and HR systems. Expense entries post to the ERP and are reviewed in the close. The expense and the equity notes feed financial reporting, and for listed companies the filings prepared there. Withholding on vesting and exercise touches tax. Dilution scenarios feed FP&A.
Questions to ask a vendor
- Which instruments do you track, and how are SAFEs and convertible notes carried through conversion?
- Which expense reports do you produce, and under which standards?
- Which HRIS and payroll systems do you connect to, and in which direction does data move?
- How do you handle employees and plans in several countries?
- Do you provide valuations yourself or through a partner?
- If we list, can the same system handle public-company reporting and filings?