Cap Tables: The Startup Founder's Guide

Sean Higgins
Sean Higgins


If your startup were a Netflix series, the cap table would be the credits rolling at the end of each episode. For any up-and-coming founder, it's crucial to have a detailed understanding of who owns what at each stage of the business. This is true whether you're doing diligence for raising money or simply incorporating a new business.


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The capitalization table, or cap table, provides the information you need for a clear understanding of your company's ownership. In this post, we'll dive into what a cap table is, and how to use it.

A cap table is the place of record for the equity-based transactions of a company. It includes ownership stakes, types of shares, and option pools. 

How To Make a Capitalization Table

Most capitalization tables are created in a spreadsheet at the inception of a business. It should be carefully structured around a few key elements.

Ownership stake refers to who (founders, investors, or employees) owns what amount of the business or who has control over the company. Since most startups need a voting agreement among common and preferred shareholders, this view shows who needs to sign off on major company decisions (e.g., company sale or reorganization). The ownership stakes section will also often list shareholder names and the number of shares they hold.

The types of shares indicate who has common shares with no special treatment versus who has preferred stock. Preferred stock typically can often be converted to a 1x payout of money invested. 

Debt that can convert into equity is the other type of transaction often found on a cap table. This convertible debt is factored into all ownership calculations on a fully diluted basis. Calculating on a fully diluted basis is a way of looking at ownership where all outstanding warrants, options, and convertible notes are exercised.

Depending on your individual business needs, you may choose to include other variables in your cap table:

  • Valuation: Total cost of your business shares
  • Total of authorized shares: The number of shares your company is authorized to sell
  • Total number of outstanding shares: The total number of shares held by all stakeholders in the company
  • Reserved shares: also called restricted shares, the total number of shares available for employees.

Now that we know what goes into a cap table let’s look at a sample template that you can use as inspiration.

Cap Table Template

Here's a sample cap table:

Cap table example

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As the columns move from left to right, additional dilution items are applied to get an understanding of a person's true ownership percentage of the company.

You'll notice the cap table lays out the essential pieces of a transaction:

  1. Shareholder name as it appears on the security
  2. Date of issuance
  3. Number of shares or units issued

How To Use a Cap Table

1. Understanding your equity.

One of the primary uses of the cap table is to show how decisions impact the equity structure of a company. Do you want to expand the employee option pool? Are you raising another funding round?

Either way, you can see exactly what impact that will have on your shareholder groups. When you're raising funding for the first time, you need to know exactly what you're giving up. The cap table will do just that, and show you the proposed new structure of the company.

2. To discuss initial equity distributions.

When creating a new company, the cap table is where you put the company breakdown in writing. Discussing initial equity distributions is difficult, but it's a conversation that needs to happen at the formation of every business. Outline distributions to the founding team — and use the cap table to facilitate the conversation on day one.

3. For managing employee options.

When hiring new employees, you want to align their incentives with the objectives of the company. Stock options are a great way to do just that. It gives you a way to match an employee's contributions with the appropriate amount of stock.

The cap table shows exactly how many options are authorized or available to be issued at any given moment. It also lists the number of options used to date. When creating your cap table, you'll want to ensure you have enough options to cover a 12-month rolling period.

4. Term sheet negotiation.

Having a clear snapshot of your company's ownership structure enables you to run a what-if analysis on a financing round. Look at what happens to your ownership stake and company control at different valuation levels, and evaluate other factors such as if new options are issued before or after financing. This gives you insight into what situations you're happy with and where to draw your line in the sand.

How To Maintain a Capitalization Table

Maintaining a capitalization table is essential, as things that were relevant when you started your business have likely changed. For example, increased investments, more funding rounds, and more employees can impact the numbers in your chart, so keeping it up-to-date ensures you always have the correct information. Here are some common elements to keep track of and update when necessary on your cap table: 

  • Valuation: Whenever your stock price changes, update it. 
  • Investors: When you get new investors, add them to your table. 
  • Reserve/restricted Stock: If you offer stock to employees, update the number of shares when you hire. 
  • Debt that has converted to equity
  • Total outstanding shares
  • Remaining authorized shares

In addition, it’s important to ensure that there are specific people(s) or teams assigned to manage your cap table. If various groups have edit access, it can get confusing if people are on different pages. Ensure that there is a designated person or persons to update the table when necessary and that they have access to the information to help them do so.

Capitalization Table Examples

The capitalization table you choose to create can vary depending on the stage your business is in, as well as the metrics you're hoping to track. Let’s go over some examples that will help you understand what to include in your table. 

Basic Cap Table

This cap table has the essential elements to include if you’re hoping for a simple overview of shares and stock. 

capitalization table example: basic cap table

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Pre-Investment Cap Table

For businesses that have yet to go through funding rounds or obtain investments. 

capitalization table example: pre-investment or funding table

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Post-Money Comparison Cap Table

For businesses that have gone through funding or investment rounds and want to compare new capital to pre-funding rounds. 

capitalization table example: pre and post-money comparison funding table

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A cap table isn't a legal document, but rather a snapshot of ownership information used to make decisions. Understanding the information it contains and common ways to use it will guide you on your path -- and make your next big fundraising decision or employee hire a little easier. So, whatever type of episode your startup turns out to be, don't forget to write down the credits.

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Topics: Startups

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