Quick facts
- Full name: capitalization table
- What it does: records who owns what percentage of the company
- When it changes: every financing, option grant, or conversion
- How ownership is quoted: on a fully diluted basis, defined below
A cap table (short for capitalization table) is the record of who owns your company. It lists every shareholder, how many shares each one holds, what type of shares those are, and what percentage of the company that represents. It also tracks the things that are not shares yet but will be: stock options, warrants, and convertible instruments like SAFEs.
In plain English
Your cap table is the company's ownership scoreboard. Every time you raise money or grant options to an employee, the scoreboard changes, and everyone's percentage moves. If you have never read one before, the important thing to understand is that the percentages are not fixed. They are the output of an arithmetic that runs again every time you sign something.
Issued and outstanding, versus fully diluted
This is the distinction that confuses first-time founders most, and it decides whether a percentage you have been quoted is real.
Issued and outstanding means shares the company has actually handed to someone. A company might authorize ten million shares in its charter but only issue six million of them. Options do not count here, because an option is only a right to buy a share later. Until someone exercises it, no share exists.1
Fully diluted means the total if everything that could become a share does become one: all issued common and preferred stock, all outstanding options, and usually the entire option pool, including the part nobody has been granted yet.1
Investors quote ownership on a fully diluted basis, because it reflects what they will actually own. You should too. The gap is not small. In a company with eight million shares issued and ten million fully diluted, a grant of 100,000 shares is 1.25% of outstanding stock but 1% fully diluted.1 Same grant, two different numbers, and the larger one is the one people quote when they want an offer to sound better.
What a cap table tracks
| Column | What it tells you |
|---|---|
| Shareholder | Who holds the equity |
| Share class | Common, Series A Preferred, and so on |
| Shares held | The raw number, not the percentage |
| Fully diluted % | Ownership counting everything convertible |
| Vesting status | How much of it they have actually earned |
| Price per share | What they paid, which sets the preference stack |
Common stock is what founders and employees hold. Preferred stock is what investors hold, and it carries extra rights such as a liquidation preference that decides who gets paid first in a sale. Options exist because Delaware law lets a corporation create rights to acquire its own shares in the future.4
What a financing actually does to the numbers
Start with 10,000,000 founder shares and no option pool. Founders own 100%.
An investor puts in $2,000,000 for 20% of the company after the round closes. For founders to hold 80% of the result, the company issues 2,500,000 new shares, bringing the total to 12,500,000. The price is $2,000,000 divided by 2,500,000, or $0.80 per share.
- Founders: 10,000,000 of 12,500,000 = 80%
- Investor: 2,500,000 of 12,500,000 = 20%
Nobody took anything from you. Your share count did not change. Your percentage fell because the denominator grew, and that is what dilution is.
Where the pool changes who pays
Now add the term almost every seed and Series A term sheet contains: the investor wants an employee option pool, sized as a percentage of the company after the round, but created before the round closes.
Most investors require that the whole post-closing pool be treated as part of the pre-closing share count when the price per share is calculated, which means it dilutes the people who were already there and not the new money.2
Run the same round with a 10% post-money pool created pre-money. Founders now end at 70%, so the total becomes 14,285,714 shares:
- Founders: 10,000,000 = 70%
- Option pool: 1,428,571 = 10%
- Investor: 2,857,143 = 20%
The investor still owns 20%. The pool cost founders ten percentage points and cost the investor nothing. It also moved the price per share from $0.80 down to $0.70, because the same $2,000,000 now buys more shares.
That is the whole mechanism, and it is negotiable. A smaller pool at a lower valuation can leave you owning more than a larger pool at a higher one. The detail is in the option pool shuffle.
Instruments that are not on the cap table yet
A SAFE (Simple Agreement for Future Equity) is money you have already spent that has not yet become shares. It converts at your next priced round. Y Combinator's post-money SAFE, published in 2018, measures the investor's ownership after all SAFE money is counted, so the arithmetic is simply the investment divided by the valuation cap.3 A $500,000 SAFE at a $5,000,000 post-money cap is 10% of the company, and it is 10% you have already sold.
Founders routinely underestimate this, because a signed SAFE does not appear as a percentage anywhere until conversion day. Track them on the cap table from the moment you sign.
Mistakes that are expensive to fix later
- Letting it go stale. Reconstructing two years of grants during diligence costs real legal fees.
- Promising equity in conversation. An unwritten promise is still a dispute.
- Leaving SAFEs off. They are dilution you have already agreed to.
- Quoting issued and outstanding percentages to candidates, which overstates what they own.
- Ignoring vesting. Unvested shares are not yet earned, and a vesting schedule decides what happens if someone leaves early.
What to do next
Before you negotiate anything, model the round. Put in the money raised, the percentage the investor wants, and the pool they are asking for, then read your own percentage off the bottom. Do it a second time with the pool one third smaller so you know what that clause is worth in points. Run it through the dilution calculator, then read how founder dilution compounds across rounds.
If your cap table and your investor's model disagree, one of you has the option pool on the wrong side of the round. It is usually worth finding out which before you sign.
Related reading
- Vesting Schedule explains how equity is earned over time
- SAFE covers the instrument that converts into your next round
- Anti-Dilution Provisions covers terms that change the conversion math
- Liquidation Preference covers who gets paid first in a sale