Cap Table Basics Every Founder Must Know

A cap table (capitalisation table) is a record of everyone who holds equity in your company: founders, investors, employees with options, and holders of convertible instruments. It shows share counts, ownership percentages, and the economic value of each stake at different company valuations.

What a cap table is

A cap table is your company's ownership ledger. In its simplest form, it is a spreadsheet listing every equity holder, the type of equity they hold (common shares, preferred shares, options, warrants, or convertible instruments like SAFEs), and their percentage of the company on a fully diluted basis.

Fully diluted means counting every share that could ever exist: shares already issued, unexercised options, convertible notes and SAFEs not yet converted, and any outstanding warrants. Investors always evaluate ownership on a fully diluted basis because that is the number that reflects economic reality.

What a founding cap table looks like

At founding, the math is clean. It gets more complex the moment you bring in outside capital. If you are starting from scratch, Pitchwise's free cap table template gives you a structured starting point you can customise from day one.

What dilution means and how it happens

Dilution is the reduction in your ownership percentage when new shares are issued. Think of company ownership as a pie. When you raise a round, new slices are created for incoming investors. Your existing slice does not disappear, but it represents a smaller share of a bigger pie.

Dilution is not inherently bad. If you own 40 per cent of a $1M company and raise at a $10M pre-money valuation, your stake dilutes to roughly 32 per cent, but the company is now worth far more. What matters is whether the dilution is worth the growth capital it brings in.

The option pool shuffle

Investors often require a new or expanded option pool before closing a round. The critical detail: if that expansion is included in the pre-money valuation calculation, it comes entirely out of the founders' ownership, not the investor's. A $5M pre-money valuation, with a required 10% option pool expansion, effectively values your existing equity at $4.5M. This is one of the most important points to scrutinise in any term sheet.

Dilution from new investment

When a new investor buys in, their shares are newly created. Your share count stays the same, but your percentage of the total falls because the total number of shares increased. Founders who model their cap table before accepting terms consistently negotiate better outcomes than those who focus only on the headline valuation number.

Note: Pitchwise's investor database lets you filter investors by cheque size, stage, and geography. Knowing what ownership percentage a fund typically targets helps you model dilution before you sit across the table from them.

How to read your cap table

The columns that matter most are shares outstanding, ownership percentage on a fully diluted basis, and liquidation preference by share class. Preferred shareholders, which most institutional investors are, hold rights that common shareholders do not. Understanding the difference before you sign is essential.

At the seed stage, preferred stock typically carries a one-time non-participating liquidation preference. This means the investor gets their money back first in any sale before common shareholders receive proceeds. At Series A and beyond, these terms become more varied and are negotiated more intensely.

Common cap table mistakes founders make

Warning: Handing out large advisor equity grants early is one of the most common cap table regrets. A two per cent grant to an advisor who contributes little becomes a meaningful drag on founder ownership by the time you reach Series B. Keep advisor grants small and vest them over time.

Other common mistakes include not keeping the cap table updated after every transaction, leaving SAFEs and convertible notes out of fully diluted calculations, and not modelling the next round's impact before signing a term sheet. What does a term sheet actually mean? covers the clauses that directly affect your cap table.

When sharing cap table details with investors during due diligence, control who sees what. Pitchwise's Virtual Data Room lets you share sensitive ownership documents under folder-level permissions with a full audit log, so you always know which investor reviewed which version of your cap table.

Frequently Asked Questions

When should I start a cap table?

From day one. The moment you incorporate and issue founder shares, you need a cap table. Trying to reconstruct one after several rounds of informal investment is painful and legally complicated. Start in a simple spreadsheet at incorporation and move to dedicated software as the company scales.

What is a fully diluted cap table?

A fully diluted cap table includes every share that could ever exist: issued shares, unexercised options, unconverted SAFEs and notes, and any warrants. It shows what ownership looks like if every instrument converts or is exercised. Investors always use fully diluted numbers when calculating their ownership percentage.

How much dilution is normal per funding round?

At the seed stage, founders typically dilute by fifteen to twenty-five per cent. At Series A, another fifteen to twenty-five per cent is common. By Series B, a founder who started with full ownership might hold thirty to fifty per cent, depending on round structure and how early they started issuing SAFEs.

What is a waterfall analysis?

A waterfall analysis models who gets paid what in an exit at different acquisition prices. It accounts for liquidation preferences, participation rights, and common stock payouts. Running a waterfall before accepting a term sheet shows you whether a sale at a given price would actually leave founders with meaningful proceeds.