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.
A worked example
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Let's consider a real-world example of a two-founder startup that has just closed its first seed funding round and wants to understand how ownership is distributed.
Before the seed round, the two founders split the company equally, each holding 50% of 4,000,000 total shares. To raise seed funding, the company issues 1,000,000 new shares to an investor and sets aside 500,000 shares for an employee option pool, bringing the total share count to 5,500,000.
After the round, ownership breaks down as follows. Founder A holds 2,000,000 shares representing 36.4% of the company. Founder B holds 2,000,000 shares also at 36.4%. The seed investor holds 1,000,000 shares at 18.2%, and the employee option pool accounts for the remaining 500,000 shares at 9%.
Both founders started at 50% and are now at 36.4% each, not because they sold any shares, but because new shares were issued to bring in the investor and create the option pool. This is dilution, and the cap table makes its impact immediately visible. As the company raises future rounds, the same effect will occur again, which is why founders use the cap table to model ownership outcomes before agreeing to any new investment terms.