Cap Table
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A capitalization table, commonly known as a cap table, is a detailed record of a company's ownership structure. It lists all shareholders including founders, investors, and employees with stock options along with the type of equity they hold, the number of shares, and their ownership percentage. It is an essential document for any startup managing equity and fundraising.
In depth
A cap table evolves with every funding round, stock option grant, or equity transfer. In the early stages, it may simply show founder equity splits. As the company grows, it becomes more complex, incorporating preferred shares from venture investors, convertible notes that haven't yet converted, employee stock option pools (ESOPs), and warrants. Each new issuance dilutes existing shareholders, so maintaining an accurate and up-to-date cap table is critical for understanding how ownership shifts with every transaction.
Beyond tracking ownership, the cap table plays a central role in investor due diligence, term sheet negotiations, and exit planning. During an acquisition or IPO, the cap table determines exactly how proceeds are distributed among all stakeholders based on their share class and liquidation preferences. A messy or inaccurate cap table can slow down or even derail fundraising and M&A processes, making it one of the most important documents a startup needs to keep clean and current from day one.
Example
Let's consider a real-world example of a two-founder startup closing its first seed round.
Before the round, both founders hold 50% each across 4,000,000 shares. The company issues 1,000,000 new shares to an investor and sets aside 500,000 for an option pool, bringing total shares to 5,500,000.
Each founder's stake drops from 50% to 36.4%, not because they sold shares, but because new shares were issued around them. This is dilution.