Demystifying the Cap Table: What You Need to Know Before You Fundraise

The cap table—or capitalization table—is the single most important document you will create as a founder. It’s not just a spreadsheet; it’s a living record of who owns a piece of your company. A dirty or broken cap table can kill a deal faster than a bad pitch. Here’s how to master it before you raise a single dollar.

What Is It?

A cap table shows who owns what, including founders, employees, and investors. It lists the number of shares, the type of shares (common vs. preferred), and the percentage of the company each person owns.

Why Is It So Important?

Investors need a clean, clear cap table to understand the company’s ownership structure. A “messy” cap table—one with too many small investors or unclear ownership—is a red flag. It signals future headaches and potential conflicts. Your cap table tells the story of your company’s value, dilution, and potential for a future exit.

The Founder’s Checklist:

• Know Your Ownership: Be crystal clear on your own equity and that of your co-founders. Have a vesting schedule from day one.
• Account for the Team: Reserve an “option pool”—a set amount of equity—for future employees. This shows investors you have a plan for hiring talent.
• Keep it Clean: Avoid giving small, random percentages to advisors or early friends. Use convertible notes or professional agreements.
• Understand Dilution: Every time you raise a round of funding, your ownership percentage will decrease. This is normal and necessary for growth. Be prepared to explain it confidently.

Don’t wait until you’re in a pitch meeting to understand your cap table. Get it in order now. It’s the foundation of your company’s financial future.