Capitalization Table

A cap table lists all equity holders and their securities: common stock held by founders and employees, preferred stock held by investors, stock options (both vested and unvested), warrants, convertible notes, and SAFE agreements. Each row represents a stakeholder, and columns typically show share count, share class, price per share, percentage ownership, and investment amount. The cap table can be viewed on a 'basic' basis (only issued and outstanding shares) or a 'fully diluted' basis, which includes all securities that could convert into common stock. The fully diluted view — which accounts for diluted shares outstanding — is the standard for VC and M&A analysis because it reflects true economic ownership.

Most startups reserve a portion of authorized shares for an employee stock option pool (ESOP), typically 10-20% of fully diluted shares. The option pool is a critical cap table component because it dilutes existing shareholders. In VC negotiations, investors often require that the option pool be expanded before a new round closes, which means the dilution from the larger pool falls on existing shareholders rather than the new investor. This 'option pool shuffle' effectively lowers the true pre-money valuation. Founders should track option pool usage carefully — how many options are granted, exercised, and forfeited — because this directly affects how much of the company is available for future hires.

One of the most important uses of a cap table is modeling how ownership changes across successive funding rounds. Each new round introduces new shares, diluting all existing holders proportionally. A founder who starts with 50% ownership after seed may hold 35% after Series A and 22% after Series B. The cap table makes this dilution visible and allows founders to project their ownership at exit under different fundraising scenarios. Tools like Carta, Pulley, and Shareworks have replaced the traditional Excel cap table for most startups, but understanding the underlying math — how equity value flows through a waterfall analysis — remains essential for founders and VC professionals.

At an exit (acquisition or IPO), the cap table determines how proceeds are distributed through a liquidation waterfall. Preferred stockholders typically get their liquidation preference first (1x their investment, sometimes more), and then remaining proceeds are split among all shareholders on an as-converted basis. The cap table must account for participation rights, seniority among preferred classes, and conversion scenarios. A well-maintained cap table allows stakeholders to model their payout under different exit valuations, which is why investors scrutinize cap tables during due diligence for any new round.