What is a capitalization (“cap”) table?
Takeaway: A cap table is the single, authoritative ledger of your company's ownership; it is a critical, living document that tracks every share of stock and every potential share, forming the basis for all valuation and fundraising decisions.
The capitalization table, or "cap table," is one of the most important and fundamental documents for any startup. It is a detailed spreadsheet or software ledger that provides a complete, comprehensive picture of who owns what in your company. It is not just an internal record; it is a critical tool for corporate governance, fundraising, and financial planning.
A clean, accurate, and up-to-date cap table is a hallmark of a well-managed company. A messy or inaccurate cap table is a major red flag for investors and can significantly delay or even kill a financing deal.
What Does a Cap Table Track?
A cap table tracks every single security that represents an ownership stake in your company, both actual and potential. A typical cap table will include:
A List of All Security Holders: This includes all founders, employees, consultants, and investors who hold any type of company equity.
Common Stock: The number of shares of common stock issued to each founder and early employee.
Preferred Stock: A detailed breakdown of each series of preferred stock issued to investors in your financing rounds (Series Seed, Series A, Series B, etc.).
The Stock Option Pool: The total number of shares reserved for your employee equity plan. It will detail:
The options that have been granted to specific individuals.
The vesting status of each grant.
The options that are still available in the pool for future grants.
Other Securities: Any other securities that could convert into stock, such as outstanding SAFEs, convertible notes, or warrants.
Why is the Cap Table So Important?
It's Your Single Source of Truth for Ownership: The cap table is the definitive record of who owns what percentage of your company on a fully-diluted basis. It is the basis for all ownership-related decisions.
It's Essential for Fundraising: When you are raising a new round of financing, the cap table is one of the first documents an investor will want to see. They use it to model how their investment will impact the company's ownership structure and to understand how much dilution the founders and existing investors will take.
It Drives Your 409A Valuation: The data in your cap table is a critical input for the firm that performs your 409A valuation, which is used to set the exercise price for your stock options.
It's Critical for M&A: In an acquisition, the cap table is used to create the "waterfall" analysis, which determines how the proceeds from the sale will be distributed to every single stockholder.
In the early days, you might manage your cap table on a simple spreadsheet. However, as soon as you start issuing options or raising capital, it is essential to migrate to a professional cap table management platform. These platforms automate the complex calculations and provide a professional, secure, and always-up-to-date record of your company's ownership.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.