What is a Cap Table?

A Capitalization Table, or “Cap Table,” is simply a record of who owns your company. At the very beginning, this is likely just you and a co-founder with a simple split of shares. It often lives on a napkin or a basic spreadsheet.

As a startup grows, this table becomes the central source of truth for the ownership structure. It details the percentages of ownership, equity dilution, and the value of equity across different rounds of investment. It is the mathematical representation of power and financial upside within the organization.

Every time you hire an employee with stock options or take a check from an investor, this document changes. It serves as the legal record that determines how the proceeds are distributed if the company is sold. If this document is wrong, the payout is wrong.

A cap table is not just a list of names. It breaks down the specific types of securities issued by the company. You will typically see:

• Common Stock: Usually held by founders and early employees.
• Preferred Stock: Usually held by investors who put in capital. This often comes with special rights like liquidation preferences.
• Options Pool: A chunk of shares set aside for future employees.
• Convertible Securities: Instruments like SAFEs or Convertible Notes that represent future equity.

Founders often confuse the cap table with general financial reporting. It is distinct from a balance sheet or a profit and loss statement.

Your balance sheet tracks assets and liabilities to show the current financial health of the business. It deals with cash, debt, and inventory. The cap table tracks equity. It deals with ownership stakes and potential future value.

While the balance sheet helps you manage operations today, the cap table determines who benefits from those operations in the long run. One tracks the present operational reality. The other tracks the distribution of future wealth.

The most critical time to review your cap table is before raising money. This is where the concept of dilution comes into play.

When you take investment, you create new shares to give to the investor. This increases the total number of shares, which decreases the percentage of the company that you own. Founders use the cap table to model “pro forma” scenarios. This allows you to see what your ownership will look like after a hypothetical investment.

It helps answer hard questions. If we raise two million dollars at a ten million dollar valuation, how much of the company do I have left? Does the option pool come out of my share or the investor’s share?

In the early days, an Excel spreadsheet works fine. However, as you add dozens of employees with stock options and multiple angel investors, manual entry becomes risky.

A messy cap table can kill a deal during due diligence. Investors want to see a clean, error-free history of every share issued. Many startups eventually migrate to software solutions to manage this automatically. Regardless of the tool, the founder must understand the math. You need to know exactly who owns what and how that changes when the next check comes in.