Handbook
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Fundraising
Cap Table Management
Your cap table tracks who owns what. Keeping it clean matters more than you think.
The cap table (capitalization table) shows who owns how much of your company. It seems simple, but cap table mistakes create legal nightmares, kill deals, and cost founders millions. Getting it right from the start is essential.
What a Cap Table Is
The Basics
A cap table shows:
•
All shareholders and how many shares they own
•
Types of stock (common, preferred)
•
Outstanding options and warrants
•
Ownership percentages
•
Valuation at each round
Why It Matters
For fundraising: Investors diligence your cap table. Problems kill deals.
For employees: Options come from the cap table. Mistakes affect compensation.
For exits: Everyone gets paid based on the cap table.
For governance: Voting rights, approval requirements, control.
What It Looks Like
Simple early-stage cap table:
Shareholder
Shares
Type
% Ownership
Founder A
4,500,000
Common
45%
Founder B
4,500,000
Common
45%
Option Pool
1,000,000
Reserved
10%
Total
10,000,000
100%
After seed round:
Shareholder
Shares
Type
% Ownership
Founder A
4,500,000
Common
36%
Founder B
4,500,000
Common
36%
Seed Investor
2,500,000
Preferred
20%
Option Pool
1,000,000
Reserved
8%
Total
12,500,000
100%
Common vs. Preferred Stock
Common Stock
Held by founders and employees.
Characteristics:
•
Lower price per share
•
Fewer rights than preferred
•
Last in line during exit
•
No liquidation preference
Preferred Stock
Held by investors.
Characteristics:
•
Higher price per share
•
Liquidation preference
•
Anti-dilution protection
•
Special voting rights
Why It Matters
In an exit:
1.
Preferred shareholders get paid first (liquidation preference)
2.
Then remaining proceeds split (or preferred converts to common)
Common stock holders can get less than ownership percentage suggests.
The Option Pool
What It Is
Shares reserved for future employee equity grants.
Standard Size
Typical: 10-15% initially, replenished over time.
Investors often want: Pool sized before investment (pre-money), diluting existing shareholders.
How It Works
Options are granted from the pool.
Example:
•
1,000,000 shares in pool
•
Grant employee 50,000 options
•
Pool now has 950,000 remaining
Option Pool in Fundraising
Watch out: Investors may require option pool expansion as part of the deal.
If pool is “included in pre-money valuation,” it dilutes founders more than the headline suggests.
Cap Table Over Time
At Founding
Just founders, typically:
•
Split between co-founders
•
Large option pool reserved
•
Simple common stock
After Seed
Add:
•
Seed investors (preferred shares)
•
Any convertible notes converting
•
SAFE conversions
•
Possible option pool expansion
After Series A
Add:
•
Series A investors
•
More preferred stock classes
•
More complex structure
Typical Founder Dilution
Stage
Founders %
Founding
80-90%
Post-Seed
60-75%
Post-A
45-60%
Post-B
35-50%
IPO
10-30%
Plan for this. It’s normal.
Cap Table Mistakes
Not Documenting Properly
Equity granted without proper paperwork.
Problem: Legal disputes, unclear ownership.
Fix: Proper stock purchase agreements, board approvals, 409A valuations for options.
Founder Equity Issues
Vesting not set up, unclear splits, disputes later.
Problem: Fights between founders, investors concerned.
Fix: Clear vesting (4-year, 1-year cliff standard), documented from day one.
Missing 83(b) Elections
Not filing 83(b) for restricted stock.
Problem: Huge tax bills when stock vests.
Fix: File 83(b) within 30 days of grant. No exceptions.
Over-Promising Equity
Committing more than you can give.
Problem: Can’t honor commitments, legal issues.
Fix: Track commitments carefully. Don’t promise what’s not available.
Convertible Instruments Confusion
SAFEs, notes that haven’t converted.
Problem: Unclear ownership until conversion, complex cap table.
Fix: Model conversion scenarios. Understand fully diluted ownership.
Option Pool Mismanagement
Running out of pool, not tracking grants properly.
Problem: Can’t hire, complex cleanup.
Fix: Track pool carefully. Plan for replenishment.
Managing Your Cap Table
Tools
Simple (early stage):
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Spreadsheet (careful with errors)
•
Carta (most popular)
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Pulley (simpler alternative)
As you grow:
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Dedicated cap table software
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Integration with legal and HR
Keep It Updated
Update cap table for:
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New grants
•
Vesting events
•
Exercises
•
Cancellations
•
Fundraising
Outdated cap tables create confusion.
Model Scenarios
Before making decisions, model:
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Fundraising scenarios (different valuations/amounts)
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Option grants
•
Exit scenarios
Understand impact before committing.
Audit Regularly
At least annually:
•
Verify all holders
•
Confirm documentation exists
•
Check for issues
Especially before fundraising.
Cap Table for Fundraising
What Investors Want to See
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Clean, documented cap table
•
No disputes or confusion
•
Reasonable founder ownership
•
Appropriate option pool
•
All convertibles modeled
Red Flags for Investors
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Messy or unclear cap table
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Missing documentation
•
Too many shareholders
•
Founder ownership too low
•
Unusual structures
Fully Diluted Ownership
Investors calculate ownership including:
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All outstanding shares
•
All options (granted and ungranted pool)
•
All convertible instruments
“Fully diluted” gives the complete picture.
Exit Scenarios
Understanding Waterfall
In an exit, proceeds flow in a “waterfall”:
1.
Liquidation preference: Preferred shareholders get their money back first
2.
Participation (if applicable): Preferred gets preference + share of remaining
3.
Conversion: Or preferred converts to common and shares proceeds
Why This Matters
Example: $10M exit
If investor has $5M invested with 1x liquidation preference, 30% ownership:
Scenario A (1x non-participating):
•
Investor can take $5M (preference) OR 30% × $10M = $3M
•
Takes $5M (preference is better)
•
Remaining $5M to common shareholders
Scenario B (1x participating):
•
Investor takes $5M (preference) + 30% × $5M remaining = $6.5M
•
Common shareholders get $3.5M
Terms matter for actual payouts.
Key Takeaways
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Cap table shows who owns what—keep it clean and documented
•
Common stock (founders, employees) vs. preferred stock (investors) have different rights
•
Option pool is reserved equity for employees—typically 10-15%
•
Watch how option pool is treated in fundraising (pre-money vs. post-money)
•
Plan for dilution over multiple rounds—going from 80% to 20% is normal
•
Document everything: stock purchases, options, board approvals
•
File 83(b) elections within 30 days—no exceptions
•
Use proper tools (Carta, Pulley) rather than error-prone spreadsheets
•
Model scenarios before making decisions: fundraising, grants, exits
•
Understand the waterfall: liquidation preferences affect actual payouts
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