Key takeaways
- Check whether a cap table is issued shares only or fully diluted.
- Unconverted SAFEs and notes change ownership even though they aren't shares yet.
- The legal share register, not a spreadsheet, is the final record.
A simple cap table
| Holder | Shares | Ownership |
|---|---|---|
| Founder A | 4,500,000 | 45% |
| Founder B | 3,500,000 | 35% |
| Option pool (granted and ungranted) | 1,000,000 | 10% |
| Angel investors | 1,000,000 | 10% |
| Total, fully diluted | 10,000,000 | 100% |
If the company also had $500,000 of unconverted SAFEs, this table would overstate everyone's ownership after the next round.
What investors look for in a cap table
- Founders who still own enough to stay motivated through several rounds.
- An option pool large enough to hire the team the plan needs.
- Every SAFE, note and warrant, with its terms.
- Large stakes held by people no longer involved, which can complicate later decisions.
The cap table during diligence
A fund asks for the cap table early in diligence and checks it against the incorporation documents, board approvals and convertible instruments. Model the round on it before agreeing a price. A cap table and dilution calculator can show ownership before and after.
Common confusions
- Issued versus fully diluted: issued counts existing shares; fully diluted adds options and convertibles.
- Authorised versus issued: a company may be allowed to issue more shares than it has.
- A cap table spreadsheet is a summary. The statutory register of members or stock ledger is the legal record.