What Is a Cap Table? A Guide for Founders

Your cap table shows who owns your company, and how that changes every time you raise money, hire or give equity away. Planning and actively managing it is an important part of running a startup, but many founders don't fully understand how it works until a round forces them to. This guide explains what a cap table is, what a simple one looks like, how dilution and option pools work, and what investors look for.

What is a cap table?

A cap table, short for capitalisation table, is the record of who owns a company. It lists every shareholder, the number and type of shares they hold, and the percentage of the company that gives them.

It also covers things that aren't shares yet but could become shares, such as the option pool set aside for employees. Investors use it to see exactly who owns what before they invest, and to work out what they'll own afterwards.

A simple cap table example.

Here's a simple cap table for an early-stage company with two founders, two angel investors and an option pool. Everyone holds ordinary shares.

There are two percentage columns because the option pool hasn't been issued yet:

• % of issued shares is what each shareholder owns today. With one class of ordinary shares, it's also their share of the votes.
• Fully diluted % is what each shareholder would own if every option in the pool were granted and turned into shares. Investors usually think in fully diluted terms, because that's the ownership the pool will eventually dilute down to.

Share classes on a cap table.

Not every share has to be the same. A company can have different classes of share, each with its own rights: to vote, to receive dividends, or to be paid out first if the company is sold or wound up.

Most early-stage UK companies keep it simple. Founders, angels and pre-seed investors usually all hold ordinary shares, and SEIS and EIS investors must hold them to claim their tax relief. Later rounds sometimes introduce preference shares, which give investors extra rights such as a liquidation preference.

On a cap table, each class is shown separately, so anyone reading it can see not just how much someone owns but what rights come with it. At pre-seed, unusual share classes or rights are worth avoiding: they make the cap table harder to understand and can put off future investors.

Option pools and fully diluted ownership.

An option pool is a block of shares reserved for future employees. Options give an employee the right to buy shares later, usually at a fixed price, often once they've been with the company for a set time or at exit.

On the cap table, options aren't issued shares. Granted and ungranted options sit in the option pool line, and they don't carry votes. Only when an employee exercises their options do new shares get issued, and those shares then appear on the cap table as issued shares in the employee's name.

Because the pool will eventually turn into shares, it dilutes everyone else. That's what the fully diluted column shows: each shareholder's percentage once the whole pool has been issued.

At pre-seed and seed, an option pool of at least 10% is usual. It gives you room to hire the people you'll need, and investors often ask for one to be in place as part of the round.

How raising money changes your cap table.

When you raise equity investment, the company issues new shares to the investors. The total number of shares goes up, so everyone who already holds shares owns a smaller percentage. That's dilution: existing shareholdings shrink as a percentage to make room for the new investors. The number of shares they hold doesn't change, and if the round is priced well, the value of their stake goes up.

As a rule of thumb, a round issues somewhere between 10% and 25% of the company, depending on how much you raise and the valuation. Some rounds fall outside that range in either direction, but it's a sensible guide.

Here's the cap table above after a new investor, E, puts in £500,000 at a £2m pre-money valuation:

The price per share is the pre-money valuation divided by the fully diluted shares before the round (£2m ÷ 1,111,111, about £1.80), so £500,000 buys 277,778 new shares. Nobody's shares were taken away, but everyone else now owns a smaller slice of a more valuable company.

You can model your own round, including an option pool and ASAs, in our dilution calculator, and read more about how valuations work in our guide to pre-money vs post-money valuation.

What investors look for in a cap table.

A clean cap table is simple, well recorded and leaves the people building the business with a meaningful stake. Investors will look at it closely before they invest, and some things make them nervous.

• Dead equity. Large stakes held by people who've left the business, such as a co-founder who walked away and kept their shares. That equity no longer rewards anyone doing the work, and it can't be used to attract the people who will.
• Large stakes with no ongoing involvement. Universities, accelerators or early advisers holding big chunks of equity without contributing to the business any more.
• Too many small shareholders. A long, complicated cap table can slow the business down. Anything that needs shareholder approval or signatures, including your next round, takes longer when there are lots of people to chase.
• Founders who've given too much away. Investors want to see founders well protected, and careful about handing equity to people who aren't investing. If the founders own too little early on, it's hard to keep them motivated through the rounds that follow. There are ways to fix this, such as rebalancing the cap table, but it's much easier to avoid.
• Unusual share rights. Different classes of share or special rights that aren't standard at this stage make the cap table harder to understand and future rounds harder to agree.

Common cap table mistakes.

• Not keeping records. Every share issue, transfer and option grant needs to be recorded properly. Gaps are painful to fix during due diligence, when an investor is waiting.
• Not understanding how it changes. Founders are often surprised by how valuation, an option pool or new share rights change what they own. Model each round before you agree it.
• Equity without vesting. Giving a co-founder or early employee a large stake that isn't made to vest.
• Strange share rights. Agreeing unusual rights early on that complicate every round after.

Good legal advice early on is worth it. Fixing a cap table later is usually harder and more expensive than setting it up properly.

Vesting and leaver provisions

Once shares are issued, they're issued. The only way to get them back if someone leaves is a contractual right agreed in advance, or the agreement of everyone involved.

Vesting means a person earns their shares over time, often over three or four years, rather than owning them all from day one. Leaver provisions, usually in the company's articles or a shareholders' agreement, set out what happens to someone's shares if they leave: typically, a person who leaves early has to give back some or all of their unvested shares.

Investors will expect founders and key team members to be on vesting and leaver terms. It protects everyone, including the founders who stay, from dead equity.

Managing your cap table.

A spreadsheet works on day one, but it gets error-prone quickly. We'd recommend a platform such as SeedLegals, Carta or Vestd. They keep the records straight, handle share issues and option schemes, and let you model what a future round would do to your cap table before you agree it.

If you want a cap table template to start from, our dilution calculator builds one from your numbers and gives it to you as a download.

Raising soon? Read our guides to pre-seed funding, pre-money vs post-money valuation and SEIS and EIS, which covers the rule that SEIS and EIS investors can't own more than 30% of the company.