TLDR

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&amp. 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.