Cap table

The cap table decides control and who gets paid in a sale. It shows who can vote, who can block a decision and what each holder receives when the company is sold or raises again.

Mistakes compound, because every later round or grant is calculated from whatever the table already says. A forgotten SAFE, a option grant promised but never documented or an informal equity promise to an adviser can surface years later and delay a fundraise or an acquisition. Investors and buyers check the table in due diligence, and every gap they find costs time and sometimes price.

It is also the tool for planning. Before a round, a founder can model different sizes, valuations and option pools and see how much of the company each leaves them. Founders who only look at the headline valuation are often surprised by how much they own after the round, once the option pool and converting notes are counted.

• Keep it in a spreadsheet while there are only a few holders, then move to dedicated software.
• Model any new round, grant or convertible before signing, and look at the founders' stake afterwards.
• Reconcile the table against signed agreements regularly, not only at fundraising time. In many countries the legally binding record is the company's share register, and the two must match.
• Record vesting terms next to each grant.
• Limit access to those who need it. It is one of the most sensitive documents a company holds.

A cap table lists every holder of shares and everything that could become shares. Each row shows a holder, how many shares they have and what percentage that is. The fully diluted view also counts options, a reserved option pool and instruments such as a SAFE that will convert at the next round.

Here is a worked example. Two founders hold 5,000,000 shares each. An investor puts in 500,000 euros at a 4,000,000 euro pre-money valuation, so the post-money valuation is 4,500,000 euros. The company issues 1,250,000 new shares. The investor owns 1,250,000 of 11,250,000 shares, which is 11.1 per cent, and each founder falls from 50 to 44.4 per cent.

• Counting convertibles as zero until they convert.
• Leaving out the option pool.
• Treating a handshake promise as real. Until it is written down and on the table, it is a dispute waiting to happen.