Financial Glossary
Cap Table
A capitalization table (cap table) is a structured record of all equity ownership in a company, showing each security class (common stock, preferred stock, options, warrants, convertible notes, SAFEs), the holders of each security, the number of shares or units owned, the price paid, and the resulting ownership percentage on both a fully-diluted and non-diluted basis. Fully diluted capitalization includes all shares that could exist if all options, warrants, and convertible instruments were exercised or converted. Cap tables are maintained in tools like Carta, Pulley, or spreadsheets, and must be kept meticulously accurate because errors surface -- often expensively -- during funding rounds, acquisitions, or employee stock option exercises.
Problem & Application
A startup incorporated as a Delaware C corporation has the following cap table: founders hold 7,000,000 common shares (70%); seed investors hold 2,000,000 Series Seed Preferred shares convertible 1:1 into common (20%); and an employee option pool contains 1,000,000 authorized options of which 600,000 are granted and 400,000 are ungranted (10% of fully diluted). Total fully diluted shares: 10,000,000. When a Series A investor offers to invest $3M on a $9M pre-money valuation, the pre-money per-share price is $9,000,000 / 10,000,000 = $0.90. The investor receives $3,000,000 / $0.90 = 3,333,333 new Series A Preferred shares. Post-money fully diluted shares = 13,333,333. Founders' post-money ownership: 7,000,000 / 13,333,333 = 52.5%. A financial advisor or outsourced CFO maintains the cap table, models dilution scenarios before the founder signs term sheets, and ensures that option grants are properly authorized by the board to avoid 409A compliance issues that could make options taxable at grant rather than exercise.
In Short
Cap tables are indispensable for tracking ownership and preparing for financial events, ensuring clarity and alignment among investors and stakeholders.