Definition
A capitalisation table, commonly called a cap table, is a structured record of a company's equity ownership and securities.
It can show:
Founders' ownership
Investor ownership
Employee equity
Share classes
Number of shares issued
Ownership percentages
Options and other equity-linked instruments
Changes resulting from financing rounds
A cap table provides a snapshot of the company's capital structure at a particular point in time.
What does a cap table contain?
A simple cap table might look like this:
Holder | Shares | Ownership |
|---|---|---|
Founder A | 600,000 | 60% |
Founder B | 250,000 | 25% |
Investor | 100,000 | 10% |
Employee option pool | 50,000 | 5% |
Total | 1,000,000 | 100% |
A real startup cap table can be considerably more complex.
It may also record:
Different share classes
Exercise prices for options
Vesting information
Convertible securities
Warrants
Preferred-share rights
Historical issuances
Future or potential dilution
Why is a cap table important?
A cap table helps founders and investors understand who owns what and how ownership may change.
It is important when:
Raising capital
Issuing employee equity
Calculating dilution
Negotiating an acquisition
Planning future financing
Determining shareholder rights
Assessing investor ownership
Preparing corporate records
An inaccurate cap table can create significant problems during a financing or transaction.
Cap table and dilution
Suppose the founders initially own:
1,000,000 shares
A new investor receives:
250,000 new shares
The company now has:
1,250,000 shares
The investor owns:
250,000 ÷ 1,250,000 = 20%
The founders collectively own:
1,000,000 ÷ 1,250,000 = 80%
The cap table makes this change in ownership visible.
Cap table vs. fully diluted cap table
A basic cap table may show currently issued shares.
A fully diluted cap table can additionally account for securities that could result in additional shares, such as:
Employee options
Warrants
Convertible securities
Other rights to acquire equity
This distinction matters because an investor's percentage ownership can look different depending on whether the calculation uses issued shares or a fully diluted basis.
Cap table and funding rounds
A cap table changes whenever the company's capital structure changes.
For example:
Before Series A
Holder | Ownership |
|---|---|
Founder A | 60% |
Founder B | 30% |
Employee pool | 10% |
After Series A
A new investor purchases shares.
Holder | Ownership |
|---|---|
Founder A | 48% |
Founder B | 24% |
Employee pool | 8% |
Series A Investor | 20% |
The cap table shows how the new financing changed the ownership structure.
Cap table and employee equity
Startups often reserve shares or equity interests for employees.
This may be structured as an employee stock option pool.
Including the pool in the cap table allows the company and investors to understand how much equity has been allocated or reserved for employee compensation.
Cap table and valuation
A cap table is also important when calculating the relationship between investment and ownership.
For example, an investor might invest $2 million for a 20% stake.
The simplified post-money valuation is:
$2 million ÷ 20% = $10 million
But the actual transaction may involve an option pool, existing convertible securities, or different classes of shares.
The cap table allows the parties to model these ownership effects rather than relying on a simple percentage calculation.
Cap table and convertible instruments
A startup may have financing instruments that do not immediately appear as ordinary shares.
For example, a convertible instrument may convert into equity during a future financing round.
A cap table should account for these instruments appropriately so that founders and investors understand their potential impact on ownership.
The exact treatment depends on the instrument and governing agreements.
Who uses a cap table?
Founders
Founders use cap tables to understand:
Their ownership
Dilution
Employee equity
Investor ownership
Future financing effects
Investors
Investors use cap tables to understand:
Existing ownership
Share classes
Other investors
Potential dilution
Ownership after a proposed investment
Lawyers
Legal advisers use cap tables when preparing and reviewing financing and corporate documents.
Employees
Employees receiving equity may use the cap table information relevant to their grant to understand their potential ownership, although they generally do not need access to the company's entire confidential cap table.
Cap table accuracy
A cap table should be kept current whenever relevant ownership changes occur.
Changes can result from:
New share issuances
Transfers
Financing rounds
Option grants
Option exercises
Conversions
Repurchases
Other corporate transactions
The cap table should align with the company's underlying legal records.
Example
A startup has:
Founder A: 500,000 shares
Founder B: 300,000 shares
Investor A: 150,000 shares
Employee pool: 50,000 shares
Total:
1,000,000 shares
Ownership is:
Founder A: 50%
Founder B: 30%
Investor A: 15%
Employee pool: 5%
The company then issues 250,000 new shares to Investor B.
The new total is:
1,250,000 shares
Investor B's ownership is:
250,000 ÷ 1,250,000 = 20%
The other holders' percentages decrease accordingly.
The updated cap table captures this new ownership structure.
Common misconception
A cap table is simply a list of shareholders.
Not necessarily.
A sophisticated cap table can contain much more than shareholder names and percentages.
It can model the company's entire capital structure, including different securities, option pools, convertible instruments, vesting, and potential dilution.
That information becomes increasingly important as a startup raises multiple financing rounds.
