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A capitalization table, almost always shortened to cap table, is the list of everyone who owns a piece of a company and how big each piece is. At formation it can be two lines long. By a Series B it can run to hundreds of rows, with founders, employees, angels, seed funds, a lead investor and a pool of options waiting for future hires. Every financing conversation in Palo Alto eventually comes back to it.
This page is general information, not legal, tax or financial advice. The examples use simplified, made-up numbers. Your actual ownership depends on your signed documents, so have your lawyer and accountant confirm the official records.
What a cap table contains
A complete cap table usually tracks:
- Common stock held by founders and early employees, often subject to vesting.
- Preferred stock by series, such as Series Seed or Series A, with the price paid per share.
- Options and restricted stock units granted to employees, advisors and directors.
- The unissued option pool, which is shares reserved but not yet granted.
- Warrants, often from lenders. Our venture debt guide explains why.
- Convertible securities such as SAFEs and notes that have not yet turned into shares.
The table also needs the history behind each line: the date of issue, the price paid, the vesting schedule and the board approval. Investors and acquirers will ask for that trail. Complete records also make it easier for counsel to confirm that option grants met federal and California securities exemptions. Y Combinator's SAFE user guide includes sample conversion math that shows how SAFEs flow into a priced round.
Two percentages matter. Ownership of issued shares counts only stock that exists today. Fully diluted ownership adds options, the pool, warrants and convertibles as if they had all become shares. Investors almost always price rounds on the fully diluted figure.
Worked example: formation to Series A
The numbers below are hypothetical. Two founders each take 4,000,000 shares. The company reserves a 1,000,000 share option pool and grants 400,000 options to early hires. It then raises $1,500,000 on a post-money SAFE with a $15,000,000 cap. Later it raises a $6,000,000 Series A at a $24,000,000 pre-money valuation. The lead investor requires the unissued pool to equal 10 percent of the company after the round, counted inside the pre-money valuation.
| Holder (hypothetical) | At formation | With SAFE as converted | After Series A |
|---|---|---|---|
| Founder A, 4,000,000 shares | 44.4% | 40.0% | 29.8% |
| Founder B, 4,000,000 shares | 44.4% | 40.0% | 29.8% |
| Granted options, 400,000 | 4.4% | 4.0% | 3.0% |
| Unissued pool | 6.7% (600,000) | 6.0% (600,000) | 10.0% (1,342,857) |
| SAFE investor, 1,000,000 shares | None | 10.0% | 7.4% |
| Series A investors, 2,685,714 shares | None | None | 20.0% |
| Fully diluted total | 9,000,000 | 10,000,000 | 13,428,571 |
How the numbers work:
- The SAFE buys 10 percent: $1.5 million divided by the $15 million post-money cap. Ten percent of a 10,000,000 share company is 1,000,000 shares, at $1.50 each.
- The Series A buys 20 percent: $6 million divided by a $30 million post-money valuation.
- To make the unissued pool 10 percent after the round, the company adds 742,857 new pool shares before the round. Those shares count in the pre-money share count.
- The Series A price is $24 million divided by 10,742,857 pre-money shares, or about $2.23 per share.
Percentages are rounded, so a column may not add to exactly 100. Real rounds use the exact definitions in the SAFE, the term sheet and the charter.
The option pool shuffle, in numbers
The new pool in the example holds 742,857 shares. At about $2.23 per share, those shares are worth roughly $1.66 million of the $24 million pre-money valuation. Because the pool was created before the new money came in, the Series A investors did not share that dilution. For the founders, the effective pre-money valuation was closer to $22.3 million than $24 million.
This is normal. A company needs a pool to hire. The negotiation is about size. A pool sized to an actual hiring plan for the next 18 to 24 months is easier to defend than a round number picked to protect the investor's percentage. Bring a hiring plan with titles and expected grants to the term sheet discussion.
Pro forma tables and modeling
A pro forma cap table shows ownership as if a proposed transaction had already closed. Before signing a term sheet, ask your lawyer for one that includes:
- Every SAFE and note converting under its own terms.
- Any pool increase required by the term sheet.
- The new investors' shares and price.
- Any secondary sales happening alongside the round.
Then add a waterfall: a calculation of who receives what if the company is sold at different prices. Our liquidation preferences guide shows a simple waterfall table. It helps to keep a private model next to the official records so you can test scenarios without touching the legal ledger.
Keeping the records clean
Due diligence for a priced round almost always includes a line-by-line review of the cap table against the documents behind it. Common problems:
- Options promised in offer letters but never approved by the board.
- Grants made without a current 409A valuation. Our equity and stock options guide explains why that matters.
- Missing proof that founders filed 83(b) elections.
- SAFEs signed by an angel but never recorded.
- Shares issued to a departed cofounder without vesting.
Fixing these before a round is cheaper than fixing them during one. Our due diligence guide covers what investors request and how to prepare.
What Palo Alto founders typically ask
How much should founders own after the Series A?
There is no rule. It depends on how much the company raised, at what valuations and how many founders there are. The useful question is whether the founders still own enough to stay motivated through several more rounds. Model at least two future rounds before agreeing to a large pool or a low valuation.
Should the cap table live in a spreadsheet or software?
A spreadsheet works for the first few months. Once you have option grants, SAFEs and more than a handful of holders, most companies move to dedicated cap table software, often set up with their law firm. Firms in our startup law firms guide typically help with this.
Do advisors belong on the cap table?
Yes, if they receive equity. Advisor grants are usually options or restricted stock with vesting. They count toward fully diluted shares like any other grant.
Who can see our cap table?
Investors with information rights typically receive capitalization details. Employees generally see only their own grants, although many companies share the total fully diluted share count so employees can value their offers.
Quick checklist
- Reconcile the cap table with board minutes and signed agreements every quarter.
- Record every SAFE and note the day it is signed.
- Keep 83(b) proofs and stock certificates or electronic share records together.
- Run a pro forma table before you sign any term sheet.
- Give employees the fully diluted share count when you make an offer.
Good to know
- Post-money SAFEs make dilution easy to read before a round. See our SAFE guide.
- A cap table is only as good as the documents behind it. The signed agreements control.
Frequently asked questions
What does fully diluted mean on a cap table?
Fully diluted counts every share that exists or could exist from current commitments: issued stock, granted options, the unissued option pool, warrants and convertible securities as if converted. Investors usually price rounds on a fully diluted basis, so a founder's fully diluted percentage is lower than the percentage of issued shares.
What is the option pool shuffle?
It is the effect of creating or enlarging the employee option pool before a round, inside the pre-money valuation. The new pool shares dilute only the existing holders, not the new investor. The result is a lower effective price for founders than the headline pre-money valuation suggests.
How do SAFEs show up on a cap table?
Before they convert, SAFEs are usually listed separately with the amount and cap so you can model them. A pro forma cap table then shows them as converted into preferred stock at the next priced round. Post-money SAFEs make this easier because each one maps to a known percentage before the round's new money.
Who keeps the official cap table?
The company does, usually with its law firm and often in cap table software. The official record is the stock ledger and the signed documents behind it. A spreadsheet that does not match board approvals and signed agreements will cause problems during due diligence.