What Is a Cap Table?

Group of people looking at a cap table in an office.

A cap table, short for capitalization table, is one of the most important documents for any startup or early-stage company. It details the company's ownership structure, including equity shares, investor details, and ownership stakes. Maintaining an accurate cap table is crucial as a business grows and undertakes new investment rounds.

In this article, we'll dive further into what a cap table is, why it's significant, and how to create and maintain one.

Understanding Capitalization Tables

A cap table essentially summarizes everything you need to know about who owns shares in your company and how much their holdings are worth.

The "capitalization" part refers to the total capital invested in your company through different means - cash, assets, intangible value, etc. This capital gets converted into securities like shares of stock.

The "table" is simply a spreadsheet that lists out all the details on these securities - the who, what, when, and how much of company ownership. 

Note: As you read, feel free to reference our cap table glossary section whenever you need a refresher on key terms.

What Is Included In a Cap Table?

A cap table typically outlines:


The cap table lists all entities or individuals that hold ownership shares in the company. This includes founders, investors (angels, VC firms, etc.), advisors, and employees who have been granted equity compensation.

Common vs. Preferred Shares 

The cap table breaks out the type of shares held - common shares or preferred shares. Common shares represent basic ownership. Preferred shares usually have additional rights and privileges over common shares, like liquidation preferences.

Number of Shares

The cap table shows the number of shares held by each shareholder. The total issued shares represent the company’s current share capitalization.

Share Price

The price per share that shareholders paid to purchase their shares is listed. This helps track value over time.

Percentage Ownership 

Based on the number of shares held by each shareholder, the cap table calculates the percentage equity stake they hold in the company.

Vesting Schedules

For employee stock option grants, the vesting schedule is included showing how many shares they are vested (earned) over time.

Share Class 

If the company has issued multiple rounds of preferred stock, the cap table organizes each series of preferred shares (Series A, Series B, etc).

Liquidation Preferences

Terms like participation rights and dividend rates are outlined for each series of preferred shares.

SAFE Notes

The cap table also tracks details related to Simple Agreements for Future Equity (SAFEs). This includes the names of SAFE holders, issue date, purchase amount, valuation cap, discount rate, triggering events for conversion, and post-conversion equity type.

It's important to note that not every cap table will have every single one of these components, as it often depends on the specific agreements, contracts, and funding mechanisms the company has employed. However, these are some of the standard items you'll find on many.

Want to learn more about how equity and shares work? Read our comprehensive How to Distribute Startup Equity guide.

Why Are Cap Tables Important?

For entrepreneurs, the cap table is important because it:

  • Tracks equity ownership as more people invest in the company. This ensures founders don't lose control unintentionally.
  • Helps with complex equity calculations during investment rounds.
  • Shows founders and employees their stake value as the company grows. This incentivizes them to add more value.
  • Allows for smooth acquisition talks since buyers have access to the company's structure.

For investors, the cap table:

  • Shows previous investment amounts and valuations. This helps determine fair investment terms.
  • Indicates ownership percentages so they get the right equity for their investment amount.
  • Outlines rights and preferences for different share classes.

How to Create a Cap Table

Here's a basic step-by-step guide, complete with a hypothetical cap table to illustrate the concept:

1. Set It Up

When first starting a company, founders often create a simple capitalization table from scratch to track equity ownership. This spreadsheet typically lists the founders, investors, and percentage ownership of each. 

Note: While using a basic spreadsheet is fine initially, as a startup grows and raises more funding rounds, the cap table can become complex very quickly. At some point, most startups will want to invest in an equity management software to handle these complications. This eliminates manual errors and saves significant time tracking cap table changes over the life of a startup.

Now, for illustrative purposes, let's make a hypothetical one from scratch so you can further understand each component:

To set it up, create a new spreadsheet with rows for each stakeholder and columns for ownership details. Typically, your headers might look like this:

| Stakeholder | Common Stock | Preferred Stock | Shares Owned | % Ownership |

2. Fill in Founders:

Initially, let's assume the founders are issued common shares.

For example:

Stakeholder  Common Stock Preferred Stock Shares Owned % Ownership
John Doe 500,000 0 500,000 50%
Jane Smith 500,000 0 500,000 50%

This depicts a startup with two founders, each owning 50% of the 1 million total shares issued.

3. Account for Employee Stock Options:

Assume you've set aside 200,000 shares for an employee stock option pool (ESOP). These would typically be common shares as well.

Stakeholder  Common Stock Preferred Stock Shares Owned % Ownership
John Doe 500,000 0 500,000 41.67%
Jane Smith 500,000 0 500,000 41.67%
ESOP 200,000 0 200,000 16.67%

Total shares now equal 1.2 million.

4. First Investment Round:

Let's assume an angel investor comes in and wants to invest $600,000 at a $2.4 million pre-money valuation. They're purchasing preferred shares at a price of $2 per share. Therefore, they'll purchase 300,000 shares ($600,000 ÷ $2).

With this investment, the post-money valuation will be $3 million ($2.4 million pre-money + $600,000 investment).

Now the cap table looks like this:

Stakeholder  Common Stock Preferred Stock Shares Owned % Ownership
John Doe 500,000 0 500,000 33.33%
Jane Smith 500,000 0 500,000 33.33%
ESOP 200,000 0 200,000 13.33%
Angel Investor 0 300,000 300,000 20%
Total 1,200,000 300,000 1,500,000 100%

Total shares now stand at 1.5 million.

5. Adjust for Dilution

Notice how John, Jane, and the ESOP's ownership percentages went down after the investment? This is dilution in effect.

6. Subsequent Rounds

For subsequent investment rounds, you'd repeat a similar process as with the angel investment, adjusting ownership percentages based on new shares issued.

Note: This is a very simplified example of a cap table. Real-world cap tables can be much more complex, accounting for multiple rounds of investment, various types of equity instruments, stock splits, and more. It's often advisable to work with a financial advisor or legal counsel when managing and updating a cap table.

Cap Table Glossary

Authorized Shares: The maximum number of shares that a company can issue, as determined by its articles of incorporation.

Cliff: A specified period in a vesting schedule where no shares are earned. Once the cliff period is reached (commonly one year), a large portion of shares becomes vested at once.

Common Stock: Shares typically held by founders and employees. They often come with voting rights but may have lower priority in terms of payouts compared to preferred stock.

Convertible Note: A form of short-term debt that converts into equity, typically in conjunction with a future financing round.

Dilution: A reduction in the ownership percentage of a share or stock due to the issuance of more shares.

Employee Stock Option Pool (ESOP): A specific reserve of shares designated for employees. It offers them a chance to have ownership in the company as a part of their compensation.

Equity: Ownership in a company, often expressed as a percentage of the total available shares.

Exercise: The act of purchasing shares at the strike price, as specified in a stock option agreement.

Fully Diluted Shares: The total number of shares if all options and other convertible securities were exercised. This provides a view of the company's ownership if all potential equity were turned into outstanding shares.

Issued Shares: The number of shares that have been issued to founders, investors, and employees. Not all authorized shares need to be issued.

Liquidation: The process of selling off all a company's assets and ending its business.

Liquidation Preference: A term that dictates the order in which shareholders get paid in the event of a company's liquidation. Preferred stockholders typically have a liquidation preference over common stockholders.

Option Pool: A reserve of shares set aside for future issuance to employees, typically through stock options. This is a tool for incentivizing and retaining talent.

Outstanding Shares: The number of shares that have been issued and are currently held by shareholders.

Post-Money Valuation: The valuation of the company after a funding round, which includes the money invested in that round.

Pre-Money Valuation: The valuation of the company before a funding round.

Preferred Stock: Shares typically held by investors. These often come with preferential treatment in terms of dividends and liquidation priority.

SAFE (Simple Agreement for Future Equity): An agreement that allows an investor to purchase shares in a future equity round, often used in seed-stage financing.

Shares: These represent ownership in a company. One share typically equals one vote in company decisions.

Stock Options: Contracts that give individuals the right, but not the obligation, to buy shares of stock at a specified price (the "strike price").

Vesting: The process by which employees or founders earn their shares over time. This is often done to incentivize long-term commitment.