TL;DR

A cap table is the definitive record of who owns what in a company. Cap table errors are among the most common and costly mistakes in startup M&A and fundraising. Clean cap table management from day one prevents expensive legal remediation later.

What Is a Cap Table?

A capitalization table shows the equity ownership of a company — who owns shares, how many, at what price, and what percentage. It includes common stock, preferred stock, options and warrants, and convertible instruments on a fully diluted basis.

Cap Table Structure

  1. Issued and outstanding: Only shares that have been issued
  2. Fully diluted: All issued shares plus all shares that could be issued (options, warrants, convertible instruments)

Common Cap Table Mistakes

  1. Founder shares not properly issued — creates legal uncertainty and 83(b) election issues
  2. Equity grants without proper documentation — informal promises create disputes
  3. Not maintaining a fully diluted cap table — leads to surprises at fundraising
  4. Option pool confusion — option pool created pre-money dilutes founders, not investors
  5. Using spreadsheets for complex cap tables — error-prone. Use Carta, Pulley, or Capshare

Dilution Modeling

New investor ownership % = Investment amount ÷ (Pre-money valuation + Investment amount)

Example: $2M investment at $8M pre-money = 20% dilution to existing shareholders

Key Takeaways

Key Takeaways
  • Maintain a fully diluted cap table at all times.
  • Issue founder shares on day one with vesting and file an 83(b) election within 30 days.
  • All equity grants must be formally documented with board approval.
  • Use dedicated cap table software (Carta, Pulley) — not spreadsheets.
  • Model dilution before every financing round, including option pool impact.