The Two Cap Tables of Crypto Companies: What They Are and How They Relate to Each Other

The Two Cap Tables of Crypto Companies: What They Are and How They Relate to Each Other

In the world of crypto companies, there are two cap tables that play a crucial role in determining ownership and distribution of tokens. These cap tables are the equity cap table and the token cap table. While they may seem similar, they have distinct differences and functions within the crypto ecosystem.

The equity cap table, which is more commonly known and used in traditional companies, dictates the ownership and distribution of equity among shareholders. In the context of crypto companies, the equity cap table determines the ownership of tokens that represent equity in the company. This ownership is typically distributed pro-rata across the equity cap table, with investors and founders holding the majority of the tokens.

On the other hand, the token cap table is unique to crypto companies and contains an additional element not found in traditional equity cap tables: the treasury. The treasury captures tokens from the foundation's efforts to participate in the community, such as running validators or stakers. This allows the company to incentivize network participants, like validators and stakers, to jumpstart network effects and drive adoption of the company's token.

It's worth noting that most deals in the crypto space are bespoke, meaning they are tailored to the specific needs and goals of the company and its investors. This means that investor token ownership rights can take various forms, such as warrants, where equity investors have the right, but not the obligation, to purchase tokens at a discounted price to market in an early round.

Now, let's shift our focus to another topic that complements the concept of cap tables in the crypto world. Rich Barton, a renowned consumer tech founder, has built three billion-dollar consumer companies: Expedia, Zillow, and Glassdoor. Barton's success can be attributed to his core strategy of building Data Content Loops to disintermediate incumbents and dominate search.

Barton's companies create public common knowledge, bringing network effects and significant demand at a low cost. By providing consumers with more data transparency and power, Barton's companies take power away from incumbents and give it to the people. This strategy of creating common knowledge creates a network effect, as more people use and trust the platforms, leading to more contributions and increased confidence in the anonymity of users.

Search plays a vital role in Barton's acquisition strategy. His companies primarily rely on search as an acquisition channel, driving significant demand at a low cost. By owning the top spot in search and acquiring more sites to dominate the search results, Barton's companies have an advantage over competitors that rely on paid acquisition. This ultimately allows them to own the demand side of their industries and build their own network effects.

One prime example of Barton's success in creating public common knowledge is Zillow's Zestimate. Within the first day of launching, Zillow had a million people trying to check out the Zestimate, which became a widely recognized and trusted source of information. This public common knowledge gave power to the people and offered leverage against brokers. The network effect created by the Zestimate strengthened with scale, making it a go-to destination for real estate information.

While some of Barton's ideas, like owning demand, have become mainstream, his use of data content loops to catalyze demand for his companies is still underappreciated. This strategy, combined with dominating search and creating public common knowledge, has proven to be a winning formula for Barton's consumer tech companies.

To summarize, the two cap tables of crypto companies, the equity cap table and the token cap table, play a crucial role in determining ownership and distribution of tokens. The equity cap table represents ownership of tokens that represent equity in the company, while the token cap table includes the treasury and captures tokens from the foundation's efforts to participate in the community.

Incorporating Rich Barton's strategies of building Data Content Loops, dominating search, and creating public common knowledge can bring significant benefits to companies in the consumer tech sector. By disintermediating incumbents, giving power to consumers, and owning the demand side of industries, companies can create network effects and drive adoption at a low cost.

Here are three actionable pieces of advice derived from these concepts:

1. Focus on building data content loops: Create unique content and index an industry online to bootstrap demand and drive adoption. By becoming a trusted source of information, you can attract users and build your own network effects.

2. Dominate search: Invest in search engine optimization (SEO) to ensure your company appears at the top of search results. This can drive significant demand at a low cost, giving you an advantage over competitors that rely on paid acquisition.

3. Create public common knowledge: Share information and transparency with consumers, empowering them and giving them leverage against incumbents. By creating common knowledge, you can build trust, attract more users, and strengthen your network effects.

In conclusion, the two cap tables of crypto companies and Rich Barton's strategies in the consumer tech sector share common points in terms of ownership, distribution, and driving adoption. By understanding and incorporating these concepts, companies can position themselves for success in the rapidly evolving world of crypto and consumer tech.