A cap table is a document that details the distribution of ownership in your company among founders, investors, and employees. This is an important document for attracting investment, maintaining control of your business, and planning for future growth. As your startup develops, the cap table transforms from a simple record into a comprehensive tool that reflects a more layered ownership structure.

Below, we’ll explain what cap tables are, why they’re important for startups, and how to work with them – both in the early days and as your startup expands.

What’s in this article?

• What is a cap table?
  
• Why do startups need a cap table?
  
• How to build a cap table from scratch
  
• What should a startup cap table include?
  
• How to use a cap table during funding rounds
  
• How cap tables develop as your startup grows
  

What is a cap table?

A cap table, short for capitalisation table, is a document that outlines the ownership structure of a company. It lists the company’s securities – such as common shares, preferred shares, options, warrants, and any other equity-related items – and shows who owns them. The cap table typically includes details such as the names of shareholders, the number of shares they hold, and their percentage of ownership in the company.

In early-stage startups, a cap table is relatively simple, covering founders and a few investors. As a company expands and raises more funding, the cap table can include additional investors, convertible notes, and employee stock options.

Why do startups need a cap table?

A cap table shows the breakdown of ownership among founders, investors, employees with stock options, and any other shareholders. This helps all parties understand their current stakes and how they might change with future funding rounds or stock option exercises. Maintaining a clear record of ownership is important for the following reasons:

• Fundraising: When startups raise money from investors, a cap table helps potential investors see the current ownership structure and how their investments will affect it. The document shows how much equity they’ll receive, the percentage of the company they’ll own, and the effects of dilution on existing shareholders.

• Avoiding dilution surprises: As startups expand and raise more funding, existing shareholders’ stakes can be diluted. A cap table helps those with ownership stakes see the effects of dilution and plan accordingly.

• Decision-making: Many major decisions in a company, such as selling the business or issuing new shares, require shareholder approval. A cap table clarifies who has the voting power to make those decisions based on their share ownership.

• Legal and compliance purposes: A cap table is often required for legal filings and helps ensure compliance with shareholder agreements and securities regulations.

A well-maintained cap table helps startups stay organised, plan for the future, and communicate clearly with investors, employees, and other stakeholders.

How to build a cap table from scratch

Building a cap table from scratch requires gathering details about your company’s equity structure and shareholders and organising them clearly and legibly. You can start by using a simple spreadsheet made with a tool such as Excel or Google Sheets, but as your company grows, you might want to use more advanced tools such as Carta, Capshare, and Pulley to automate this process.

Here’s a step-by-step guide for creating a basic version of a cap table.

Create a spreadsheet

Create a spreadsheet with columns for the following information:

• Shareholder name: The name of every individual or entity that owns equity in the company

• Type of equity: The type of security each person holds (e.g. common stock, preferred stock, options, warrants)

• Number of shares: How many shares or units each shareholder owns

• Percentage ownership: The percentage of the company each shareholder owns

• Share class: The class of shares (e.g. Common, Series A, Series B), if applicable

• Price per share: The price at which shares were purchased or issued, if applicable

Input ownership information

Next, enter the correct information into each column.

Founder shares

Input the total number of shares issued to the founders. Many startups will issue a large number of shares at the beginning (such as 1,000,000 or 10,000,000 total shares) to make calculations easier.

Investor contributions

Input any money raised from investors. Include the investors’ names, how much they invested, the number of shares they purchased, and whether their shares have any special terms (e.g. preferred shares with liquidation preferences).

Employee stock options

Input any employee stock options. Include the name of each option holder (or leave it anonymous if you’re just establishing the pool), the number of options granted, the vesting schedule and any conditions, and whether the options have been exercised.

Convertible notes or Simple Agreements for Future Equity (SAFEs)

Input any money raised using convertible notes or SAFEs. Include the principal amount of the note or SAFE and the terms of conversion (e.g. discount rate, valuation cap). When they convert to shares, update the cap table to reflect the new shares issued.

Calculate total outstanding shares

At the bottom of your spreadsheet, sum the number of outstanding shares (including common and preferred shares and options granted). This is the base for calculating percentage ownership for each shareholder.

Update regularly

A cap table is a living document. Every time you issue new shares, offer stock options, or raise a new round of funding, you need to update the table to reflect the new percentage of ownership for each shareholder. This will ensure that all stakeholders, including founders, employees, and investors, have an accurate view of the company’s equity structure.

Simple cap table example

What should a startup cap table include?

A startup cap table should include all the necessary information about your company’s shareholders and their ownership stakes. Here are the main components.

Shareholder information

List the names of all shareholders (e.g. founders, investors, employees with stock options). Specify whether a shareholder is an individual, a venture capital firm, or another type of entity.

Types of equity

List the type of equity each shareholder has. Here are some examples:

• Common stock: Shares issued to founders, employees, and sometimes early-stage investors. This is the standard stock that comes with voting rights.

• Preferred stock: Shares issued to investors in funding rounds. When you list these, include any additional rights, such as liquidation preferences and anti-dilution protections.

• Stock options: Granted or outstanding stock options from the employee stock option pool (ESOP). When you list these, include the vesting schedule.

• Convertible notes and SAFEs: Debt or equity instruments that convert into shares during a later financing round. When you list these, include details about their terms such as the discount rate and valuation cap.

Number of shares

List how many shares each shareholder or option holder owns, breaking them down by the type of equity. Include the following as well:

• The total number of shares the company has authorised to be issued, which might differ from the number of shares currently issued

• The total number of shares that have actually been issued and are currently held by shareholders

Percentage ownership

List each shareholder’s ownership percentage. Calculate this by dividing the number of shares held by the total number of outstanding shares.

Valuation information

Record the price at which shares were issued. This allows you to track how much each round of funding diluted ownership. Additionally, record the valuation of the company after a funding round. This helps determine how much equity new investors received in exchange for their capital.

Stock option details

Include details on stock options granted to employees, such as the number of shares, the vesting schedule, and any cliff periods that determine when options start to vest.

Dilution information

Show the effect of any new financing round or stock issuance on existing shareholders’ ownership percentages. This section helps founders and investors visualise how much ownership they are giving up when new shares are issued.

Terms of preferred stock

List the terms of all preferred stock, including the following:

• Liquidation preferences: How much preferred shareholders get paid out before common shareholders in the event of a liquidation or sale of the company

• Voting rights: Any special voting rights or privileges attached to specific share classes (e.g. preferred shares vs. common shares)

• Conversion rights: The terms for converting preferred shares into common ones

ESOP

List the total number of shares reserved for future issuance to employees, advisers, and others. This is important for attracting talent and compensating employees. Show the number of stock options that have been granted and how many are still available for future employees.

Convertible notes or SAFEs

List the principal amount of money raised through convertible notes or SAFEs. Include the discount rate, valuation cap, and conversion triggers, as these will affect how and when the notes or SAFEs convert into equity.

Share classes

Specify whether there are multiple classes of common shares such as Class A and Class B, which might have different rights, voting power, or conversion privileges.

How to use a cap table during funding rounds

During funding rounds, a cap table helps shareholders understand the impact of new investment on ownership percentages, dilution, and overall company valuation. Here’s how to use your cap table effectively during funding rounds.

Establish your pre-money valuation

Set your pre-money valuation (the company’s value before taking in new capital) before starting a funding round. Your cap table will show the current ownership breakdown, which helps when you’re working out how much equity to offer in exchange for the investment. Once the investment lands, you’ll calculate the company’s post-money valuation (i.e. your new valuation, including the fresh capital).

Simulate different funding scenarios

Use your cap table to run simulations of how different investment amounts and valuations will affect ownership. Determine how much equity an investor will get for their money (how many shares they’ll receive), and look at how the new shares affect existing shareholders’ stakes, (i.e. dilution). Your cap table should update the ownership percentages automatically, so you can see exactly what happens when more shares are issued.

Outline terms for preferred shares

If you’re issuing preferred shares, your cap table should reflect any special terms attached to these shares. Include these details:

• Liquidation preferences: Whether new investors get paid first if the company is sold or liquidated

• Conversion rights: Whether shares come with the option to convert preferred shares into common stock later on

• Anti-dilution provisions: Whether investors are protected from future dilution

Use the cap table in negotiations

During negotiations, investors will want to see how their equity compares to what’s already in place. Use the cap table to demonstrate exactly how much of the company they’ll own after the funding round, along with their control and voting power, and to offer different investment scenarios that show how ownership would shift with various amounts or terms. This is helpful in finding a balance that works for everyone.

Update stakeholders on new ownership structure

Once you close the deal, update the cap table and share the new ownership structure with all stakeholders. Founders and early investors will want to see how much their ownership changes after investment, and new investors will want to see their shares of the company and any specific rights or preferences they now have. If you have an ESOP, you’ll need to communicate any changes in the option pool and what they mean for employees who might receive options.

Prepare for future funding rounds

An up-to-date cap table also helps you plan for future rounds. After the current round, it’s easy to see how much equity founders and early stakeholders have, which can be important for maintaining control, as well as how much room there is for future dilution without creating issues for existing shareholders. You can also see whether the ESOP needs to be expanded in the next round to keep attracting talent.

Monitor key metrics

As you move through the funding round, your cap table can help you keep track of data points such as how much equity founders still have (if there is too much dilution, they might lose their incentive), any changes to the stock option pool (especially if it’s been expanded during this round), and how your company’s valuation changes round to round. This will affect future share prices for new investors.

How cap tables develop as your startup grows

As your startup grows, your cap table will develop into a more complex and layered document. Here’s how it typically changes over time.

Founding stage

At first, your cap table is simple and straightforward. At this stage, it’s usually only the founders who own shares. You’ve probably divided the equity among yourselves and might have implemented some vesting schedules to keep everyone motivated over the long term. This early table will list these details and establish the total number of shares the company can issue.

Adding an ESOP

As soon as you start hiring employees or advisers, you’ll probably set aside a pool of shares for stock options. This creates new sections in your cap table:

• ESOP: An ESOP, which might initially be a lump sum of shares with a pool reserved for future hires. These options typically have vesting schedules and won’t show up in the “outstanding shares” section until they’re exercised, but you still need to track them.

• Granted vs. unallocated: The granted options (those already given to employees) and the remaining options that are available for future team members.

Early seed round

Once you start raising capital from outside investors, the cap table will need new sections, such as the following:

• Preferred shares: Investors usually demand them for certain protections.

• Post-money valuation: The company’s value after accounting for the new investment. The new investors’ ownership percentages are based on this post-money valuation.

Convertible notes and SAFEs

If you raise capital through convertible notes or SAFEs, you’re creating, in essence, a placeholder in your cap table. These don’t convert into equity straight away, but they will at a future date (usually the next funding round).

Until conversion, you list these instruments separately on your cap table. You’ll want to document the principal amount, discount rate, and valuation cap, as these will influence how many shares they convert into later on.

Series A and beyond

As you raise more funding rounds, the cap table becomes more layered. Each round typically introduces new investors with their own preferred shares and terms. Here’s what changes:

• Each funding round will add a new class of preferred shares (e.g. Series A Preferred, Series B Preferred), each with its own set of terms.

• Each round dilutes the stakes of existing shareholders (including those of founders), meaning their ownership percentages decrease as new shares are issued. Your cap table can help you keep track of exactly how much dilution occurs and what the new ownership structure looks like.

• Some investors will negotiate anti-dilution protections, which ensure that their equity won’t be overly diluted in future rounds. The cap table will need to account for how these clauses impact ownership percentages during each new funding round.

Mergers, acquisitions, or secondary sales

As your startup grows, you might face scenarios such as mergers, acquisitions, and secondary sales (where investors or founders sell their shares privately). Here’s how the cap table reflects them:

• Secondary sales: If shares are sold between existing shareholders or investors in a secondary transaction, the cap table needs to reflect these changes.

• Acquisitions: If the company is being acquired, your cap table will show who gets what in the payout, especially if there are different liquidation preferences or multiple classes of shares.

Late-stage growth

By the time your startup is preparing for an initial public offering (IPO) or acquisition, the cap table will show various layers of ownership, from founders and early investors to later-stage investors and employees with vested stock options. Here’s what it might include:

• Multiple classes of shares: At this stage, your cap table might have multiple classes of common and preferred shares, stock options, convertible notes, and possibly warrants.

• Fully diluted cap table: You might have a fully diluted cap table, which reflects what ownership would look like if all options, warrants, and convertible notes were exercised or converted into shares.

• Public share offering: In the event of an IPO, the cap table will reflect how shares are distributed between existing shareholders and public investors.