A cap table (capitalization table) is a comprehensive spreadsheet that shows the equity ownership structure of a company, including all securities, equity holders, and ownership percentages. It tracks who owns what percentage of the company and how ownership changes over time through investments, stock issuances, and option grants.
A capitalization table, commonly called a "cap table," is the definitive record of a company's ownership structure. It's a detailed spreadsheet that tracks every share of stock, stock option, warrant, and convertible security issued by the company, along with the names of holders and their respective ownership percentages.
The cap table serves as the single source of truth for equity ownership and is essential for making strategic decisions about fundraising, employee compensation, and potential exits. It's used by founders, investors, lawyers, and accountants to understand current ownership and model future scenarios.
This represents the foundational equity of the company, typically held by founders, employees (through options), and sometimes early advisors. Common stockholders usually have voting rights and participate in company proceeds after preferred stockholders in liquidation events.
Issued to investors in financing rounds, preferred stock comes with enhanced rights like liquidation preferences, anti-dilution protection, and often board representation. Each funding round typically creates a new series of preferred stock (Series A, B, C, etc.).
These represent the right to purchase common stock at a predetermined price (the strike price). Options are typically granted to employees as part of compensation packages and vest over time, usually 3-4 years with a 1-year cliff.
Similar to options but typically issued to investors, advisors, or service providers. Warrants give the holder the right to purchase stock at a specific price within a certain timeframe.
Including convertible notes, SAFE notes, and convertible preferred stock, these securities will convert to equity under specific conditions, typically when the company raises a qualified financing round.
This shows the present-day ownership structure, including:
This shows ownership assuming all options, warrants, and convertible securities convert to stock. The "fully diluted" view is crucial for understanding true economic ownership and is typically what investors reference when discussing ownership percentages.
A chronological record of all equity transactions, including:
The cap table must be updated immediately after any equity transaction. Delays or errors can create legal complications, tax issues, and disputes among stakeholders. Many companies assign cap table management to a specific person (often the CFO or corporate counsel) who maintains the official version.
While many companies start with Excel spreadsheets, dedicated cap table management software like Carta, Pulley, or Shareworks provides better accuracy, audit trails, and integration with legal documents. These platforms also automate complex calculations and scenario modeling.
Cap tables should be reviewed and approved at board meetings, especially after equity transactions. This ensures transparency and helps identify any discrepancies before they become major issues.
New investment rounds dilute existing shareholders unless they exercise pro rata rights. A typical Series A might result in:
Growing companies regularly expand employee option pools to attract talent. These expansions dilute all existing shareholders proportionally, though investors may negotiate for pools to be carved out of founder shares rather than on a fully-diluted basis.
When companies raise money at lower valuations than previous rounds, anti-dilution provisions may protect investors while significantly diluting founders and employees. Full ratchet protection is more punitive than weighted-average protection.
Analyzing how ownership is distributed among founders, investors, and employees helps assess control dynamics and motivation alignment. Highly concentrated ownership may limit future fundraising ability, while overly dispersed ownership can create governance challenges.
Understanding how different investor classes rank in liquidation scenarios is crucial for modeling exit proceeds. Companies with high liquidation preference stacks may need larger exits for founders and employees to receive meaningful proceeds.
Regular analysis ensures the company has adequate options available for key hires. Running out of options can force expensive repricing exercises or dilutive pool expansions at inopportune times.
The cap table must track which stockholders have filed 83(b) elections for restricted stock, affecting their tax treatment upon vesting. Missing 83(b) elections can create significant tax liabilities.
Cap table data directly feeds into 409A valuation analyses, which determine fair market value for option pricing. Accurate cap tables ensure proper compliance with IRS Section 409A requirements.
The cap table must support securities law compliance, tracking investor qualifications, exemption usage, and information rights. Errors can jeopardize securities law exemptions and create liability.
Companies approaching potential exits use cap tables to model how sale proceeds would distribute among various stakeholder classes. This analysis often reveals the need for cap table restructuring to ensure adequate founder and employee incentives.
Companies with complex liquidation preference stacks may need to restructure before exits to ensure reasonable founder and employee proceeds. This might involve converting preferred stock to common or negotiating preference modifications.
Pre-exit activities often include exercising expired options, repurchasing unvested shares from departed employees, and consolidating small holdings to simplify the cap table for potential acquirers.
Failing to update cap tables promptly or accurately can create disputes, tax problems, and legal complications. Regular reconciliation with legal documents and corporate records is essential.
Some early companies create overly complex structures with multiple stock classes or unnecessary complications. Simple structures are usually preferable until complexity is justified by business needs.
Cap table decisions affect individual tax liabilities, particularly around stock option exercises and restricted stock vesting. Companies should provide tax guidance and consider timing implications.
Cap table management costs vary significantly based on company size and complexity:
Many companies find that professional cap table software pays for itself by reducing legal fees and preventing costly errors, especially as complexity increases with multiple funding rounds.
Two founders own 70% combined, 20% employee option pool, 10% advisor shares. Simple structure with only common stock and options, managed in Excel spreadsheet.
Complex cap table with founders (30%), Series A investors (25%), Series B investors (20%), employees (15%), and advisors (10%). Multiple liquidation preferences and anti-dilution provisions requiring professional software.
Highly complex structure with 6 preferred stock series, multiple option pools, warrants, and convertible securities. Requires dedicated cap table management team and sophisticated modeling tools.
Basic ownership shows current issued and outstanding shares only. Fully diluted includes all potential shares from options, warrants, and convertible securities as if they were exercised/converted. Investors typically negotiate based on fully diluted percentages.
Immediately after any equity transaction - option grants, exercises, stock issuances, or transfers. Many companies also perform quarterly reconciliations to ensure accuracy and completeness.
Full cap tables are typically restricted to founders, board members, and key executives. Employees usually receive limited information about their own holdings. Some investors have information rights requiring regular cap table updates.
Unvested options typically forfeit immediately. Vested options usually must be exercised within 90 days or they expire, though some companies extend this period. The cap table must track these changes accurately.
Convertible notes appear as debt initially but convert to equity based on predetermined terms. Companies must model conversion scenarios to understand potential dilution and often maintain pro forma cap tables showing post-conversion ownership.
Excel works for very simple early-stage companies but becomes error-prone and time-intensive as complexity increases. Companies with multiple rounds, option grants, or convertible securities benefit significantly from dedicated cap table software.
Liquidation preferences determine payout order in exits, often meaning common stockholders receive little or nothing in moderate exit scenarios. Cap table analysis must model various exit values to understand true economic ownership.