What Is a Cap Table?
A capitalization table (cap table) is a spreadsheet that shows who owns what percentage of your company. Every shareholder, every option grant, every SAFE - it's all tracked here. It's one of the first things investors look at during due diligence.
At its simplest, a cap table lists: who owns shares, how many shares they own, and what percentage of the company that represents.
A Clean Cap Table vs. a Messy One
Clean (what investors want to see):
| Shareholder | Shares | Ownership |
|---|---|---|
| Founder A | 4,000,000 | 40% |
| Founder B | 4,000,000 | 40% |
| Option pool | 1,500,000 | 15% |
| Angel investor (SAFE) | 500,000 | 5% |
| Total | 10,000,000 | 100% |
Messy (what makes investors nervous):
| Shareholder | Shares | Ownership |
|---|---|---|
| Founder A | 2,000,000 | 20% |
| Founder B (left after 3 months) | 2,000,000 | 20% |
| "Advisor" who had one coffee meeting | 500,000 | 5% |
| Previous accelerator | 1,000,000 | 10% |
| Uncle who gave $5K | 500,000 | 5% |
| Friend from college | 300,000 | 3% |
| Option pool | 2,000,000 | 20% |
| Remaining founder equity | 1,700,000 | 17% |
| Total | 10,000,000 | 100% |
In the second example, the active founder owns only 20%. There's dead equity from a departed cofounder. An advisor has 5% for no clear reason. An accelerator took 10%. The cap table tells a story of poor decisions - and investors read that story carefully.
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How to Set Up Your Cap Table
Step 1: Authorize shares
Most Delaware C-Corps authorize 10,000,000 shares at incorporation. This is standard and gives you room for future dilution.
Step 2: Allocate founder shares
Split shares between cofounders based on contribution, role, and commitment. All founder shares should vest over 4 years with a 1-year cliff. No exceptions.
Step 3: Create an option pool
Reserve 10-15% for future employee stock options. Don't create a 20% pool unless you're about to hire aggressively.
Step 4: Track everything
Use a cap table management tool (Carta, Pulley, Captable.io) or a well-organized spreadsheet. Update it every time equity changes hands.
The 5 Cap Table Mistakes That Kill Deals
1. No founder vesting. If cofounders don't vest, a cofounder can leave after 6 months with 50% of the company. Every investor will ask if you have vesting. The answer must be yes.
2. Dead equity. A cofounder who left early but still holds a large chunk of equity. This is the #1 cap table red flag. Use vesting and buyback provisions to prevent it.
3. Too many small shareholders. 15 people who each own 0.5-2% creates administrative nightmares. Every future round requires consent from all shareholders. Keep the cap table tight.
4. Advisor over-grants. Standard advisor equity is 0.25-0.5% vesting over 2 years. Anyone with 2-5% should be providing extraordinary, full-time-equivalent value.
5. Incorrect SAFE tracking. SAFEs don't show up as equity until they convert, but they represent committed dilution. Track all outstanding SAFEs and their conversion impact on a pro-forma cap table.
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Cap Table Through Multiple Rounds
Here's how a typical cap table evolves:
| Stage | Founders | Option Pool | Pre-Seed | Seed | Series A |
|---|---|---|---|---|---|
| Incorporation | 100% | - | - | - | - |
| Option pool | 85% | 15% | - | - | - |
| Pre-seed ($300K at $3M cap) | 76% | 15% | 9% | - | - |
| Seed ($2M at $10M pre) | 60% | 15% | 8% | 17% | - |
| Series A ($10M at $40M pre) | 48% | 12% | 6% | 14% | 20% |
Key takeaway: Founders go from 100% to roughly 48% over three rounds. This is normal and healthy - each round should increase the value of your remaining shares even as the percentage decreases.
Tools for Managing Your Cap Table
| Tool | Price | Best For |
|---|---|---|
| Carta | From $0 (startup plan) | Full cap table management, 409A valuations |
| Pulley | From $0 (free tier) | Early-stage, simple and clean |
| Captable.io | Free | Spreadsheet alternative with better UI |
| Google Sheets | Free | Pre-seed, before things get complex |
At pre-seed, a spreadsheet is fine. Once you have SAFEs converting, option grants, and multiple shareholders, move to a dedicated tool.
Frequently Asked Questions
What is a cap table in simple terms?
A cap table is a spreadsheet that shows who owns what percentage of your company. It lists all shareholders (founders, investors, employees with stock options), the number of shares each holds, and their ownership percentage. It's updated every time equity is issued or transferred.
When should a startup create a cap table?
At incorporation. Even if it's just two cofounders splitting 50/50, document it from day one. As you add option pools, advisors, and investors, the cap table becomes essential. Retroactively creating a cap table is painful and error-prone.
What does a clean cap table look like to investors?
Investors want to see: founders holding 70-80%+ after pre-seed, a reasonable option pool (10-15%), all shares on vesting schedules, no dead equity from departed members, and no excessive advisor grants. The simpler the cap table, the more confident the investor.
How much equity should cofounders split?
There's no universal rule, but equal or near-equal splits are most common for cofounders who start at the same time and contribute equally. Unequal splits should reflect meaningful differences in contribution, risk, or commitment - not negotiating leverage.
Artem Luko is an angel investor based in Marbella, investing $25K-$3M in pre-seed and seed startups. Learn more at artemluko.com.