What Is a Cap Table? A Plain-English Guide for Founders
What is a cap table? Learn what it lists, how outstanding and fully diluted shares differ and how to read yours with a worked example before you meet investors.
What is a cap table? A cap table (capitalization table) is a record of every owner of your company, what each one holds, and what percentage of the company that represents. It lists shares, options and other instruments that can turn into shares. Founders, investors and employees all read it to answer one question: who owns what, today and after the next round?
You need one from the day a company has more than one owner. A spreadsheet is enough at the start. It gets harder to keep right once you add employees with options and investors who put in money through different instruments. This guide explains each part, shows a worked example with the arithmetic, and covers the mistakes that cost founders the most.
What is a cap table and what does it contain?
A cap table has one row per holder and a few columns for each type of security. A security here means anything that represents ownership or the right to ownership. The core columns are below.
| Item | What it is | Who usually holds it |
|---|---|---|
| Common shares | Basic ownership. Each share carries a vote and a claim on what is left after other claims are paid. | Founders, sometimes employees and advisors |
| Preferred shares | A class of shares with extra rights, such as being paid back first if the company is sold. The name varies by country. | Investors |
| Options | The right to buy shares later at a fixed price, the exercise price. Often subject to vesting, which means the right is earned over time. | Employees and advisors |
| Option pool | Shares set aside for future option grants. Not yet given to anyone. | Held by the company for future hires |
| Warrants | Like options, but usually given to lenders or partners. | Lenders, strategic partners |
| Convertible instruments | Money in now, shares later. Examples are SAFEs and convertible notes. | Early investors |
Each row shows the number of shares, the percentage of the company, and often the price paid and the date. A good cap table also shows percentages in two ways, which the next section explains.
Outstanding shares versus fully diluted shares
Outstanding shares are the shares that exist and are owned by someone today. Fully diluted shares are the outstanding shares plus everything that could become shares: all options (granted or not), the unused option pool, warrants, and convertible instruments counted as if they had converted. Investors price rounds on the fully diluted number, so you should read your own ownership that way.
Example: a first priced round. Two founders own 5,000,000 shares each, so 10,000,000 in total and 50% each. An investor offers €500,000 at a €2,000,000 pre-money valuation. The pre-money valuation is what the company is worth before the new money.
- Post-money valuation = €2,000,000 + €500,000 = €2,500,000.
- Price per share = €2,000,000 / 10,000,000 shares = €0.20.
- New shares for the investor = €500,000 / €0.20 = 2,500,000.
- Total outstanding = 10,000,000 + 2,500,000 = 12,500,000.
The company also reserves 1,500,000 shares as an option pool for future hires. Fully diluted shares are 12,500,000 + 1,500,000 = 14,000,000.
| Holder | Shares | % outstanding (of 12,500,000) | % fully diluted (of 14,000,000) |
|---|---|---|---|
| Founder A | 5,000,000 | 40.0% | 35.7% |
| Founder B | 5,000,000 | 40.0% | 35.7% |
| Investor | 2,500,000 | 20.0% | 17.9% |
| Option pool (unissued) | 1,500,000 | 0% | 10.7% |
| Total | 12,500,000 / 14,000,000 | 100% | 100% |
Each founder looks like 40% on the outstanding view and is 5,000,000 / 14,000,000 = 35.7% on the fully diluted view. Both numbers are correct. They answer different questions, so always say which one you mean. For a deeper look at how each round moves these numbers, read what is equity dilution.
How the option pool changes the table
An option pool is a block of shares reserved so you can hire people with equity. Investors often ask for the pool to be created or topped up before they invest, and to be counted inside the pre-money valuation. This is sometimes called the option pool shuffle. The effect is that the existing holders, mostly the founders, carry the whole cost of the pool, and the new investor's percentage is protected.
The term sheet may say, for example, that the pre-money valuation includes an available option pool of 10% of the post-money fully diluted capital. That sentence lowers the real price founders get for their existing shares. Check how large the pool is, whether it fits a real hiring plan, and whether it sits before or after the investment. Hiring plans for the next 12 to 18 months are a fair basis for the size. You will see the arithmetic of a pre-money pool in the dilution guide linked below.
How SAFEs and convertible notes appear on a cap table
A SAFE (Simple Agreement for Future Equity) is an instrument created at Y Combinator in 2013. An investor pays now and receives shares automatically when the company raises its next priced round. A convertible note is a loan that converts into shares in the same way. Neither gives the investor shares today, so they do not appear as shareholders on the outstanding view. They still belong on your cap table, because they will dilute you when they convert.
For a SAFE with a post-money valuation cap, the ownership it buys is the investment divided by the cap. Example: €100,000 on a €1,000,000 post-money cap is €100,000 / €1,000,000 = 10%. If you sign three of these, the investors together will own 30% before the priced round adds anyone else. Track each one with its amount, cap, discount and date. The details of each instrument are in SAFE notes explained and convertible notes explained.
Mistakes that make a cap table wrong
- Handshake equity. A promise of "a few percent" with no document. Later nobody agrees what was promised. Write every grant down, with the number of shares, the price and the vesting terms.
- Ignoring vesting. Founders and employees should earn their shares over time, often over four years with a first-year cliff. A cliff means nothing is earned until that date. Shares given with no vesting stay with a person who left in month three.
- Only counting outstanding shares. You will overestimate your ownership by missing the pool and convertibles.
- Forgetting convertibles. SAFEs and notes sit outside the share count until the round, then arrive all at once.
- Two versions of the truth. One spreadsheet in your inbox, another with your lawyer. Pick one master copy and update it after every issue, grant, exercise and transfer.
- No match with the legal record. The cap table is a working view. The company's official share register, kept under your local rules, is the legal record. They must agree.
Who reads your cap table, and when
| Reader | What they check |
|---|---|
| Investors | Founder ownership, size of the pool, outstanding SAFEs and notes, any unusual rights |
| Lawyers | That every holding matches a signed document and the official share register |
| Acquirers | Who must approve a sale and how proceeds are split |
| You | How much of the company you keep after the next round |
If you raise or sell the company, the buyer or investor will run a due diligence check, which is a document review before they commit. Keeping your cap table clean from the start makes that review shorter.
Frequently asked questions
What is a cap table used for?
It shows who owns what in the company and lets you model the effect of a new round, a new hire grant or a sale. Investors use it to decide whether a deal works for them. Founders use it to see what they keep.
Do I need a cap table before I raise money?
Yes, if you have more than one owner or you plan to give anyone equity. Investors will ask for it in the first meeting after interest turns serious. Building it early also forces you to settle who owns what while everyone still agrees.
Is a spreadsheet enough for a cap table?
For a company with a few holders and no options, yes. Once you add employee options, several SAFEs or more than one round, formulas break easily. Software helps, but a careful spreadsheet with one owner and a change log works.
What is the difference between a cap table and a share register?
A share register is the company's official legal record of its shareholders. A cap table is a working view that also includes options, pools and convertibles, and models future rounds. Keep them consistent.
Does a SAFE appear on the cap table?
Yes. It holds no shares until it converts, so list it separately with its amount and cap and show an as-converted view. That is the only way to see your true ownership after the next round.
This is general education, not legal or tax advice. Instrument names, tax treatment of equity and the formalities of issuing shares differ by country. Check the details with a lawyer where your company is registered.
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