A capitalization table tracks who owns what percentage of your company. It starts simple -- just founders and their shares -- but grows in complexity with every funding round, employee grant, and convertible note. Understanding your cap table is essential for making informed decisions about equity.
Cap Table Basics
Your cap table should track: authorized shares (total shares the company can issue), outstanding shares (shares issued to founders, employees, investors), option pool (shares reserved for future employee grants), and convertible instruments (SAFEs and notes that will convert to equity). Keep it in a dedicated tool like Carta, Pulley, or Captable.io from day one.
How Dilution Works
Every time you issue new shares -- to investors, employees, or convert SAFEs -- existing shareholders are diluted. If you own 50% of 1M shares and issue 500K new shares to an investor, you now own 33% of 1.5M shares. Your percentage decreased, but the value of your shares should increase if the new capital grows the company.
The Option Pool Shuffle
Investors typically require a post-money option pool of 10-20% at each round. This dilution comes entirely from existing shareholders, not the new investor. Negotiate the size carefully: a 20% post-money pool at seed dilutes founders significantly more than a 10% pool.
Protecting Founder Control
As you raise multiple rounds, your ownership percentage will decrease. Protect your control through: voting agreements (maintain majority voting rights even with minority economic ownership), board composition (keep founder-majority boards through seed stage), and protective provisions (limit what investors can veto).
Common Cap Table Mistakes
Giving away too much equity too early to advisors or early employees. Not filing 83(b) elections. Issuing shares without proper documentation. Losing track of convertible instruments and their terms. Each mistake can be expensive or impossible to fix later.
