Capitalization (Cap) Tables Explained: Definition & Examples

In the ever-evolving landscape of startups, a fundamental tool to decode equity ownership is the 'cap table', or capitalization table. This essential document provides a comprehensive breakdown of 'who owns what' in a startup, playing a vital role in decision-making for both founders and investors. It serves as a key component in due diligence, illustrating how each stakeholder's equity position shifts in response to fundraising events. As a startup grows, the complexity of its cap table intensifies, making understanding cap table interpretation indispensable for potential investors.

This comprehensive guide will delve into the complexities of cap tables, providing valuable insights on how to interpret both pre-financing and post-financing (or 'pro-forma') cap tables. The following key areas will be explored:

  1. The Importance of Cap Tables in Startups: Understand the pivotal role that cap tables play in determining the strategic financial decisions of a startup.
  2. The Evolution of Cap Tables Over Time: Dive into how cap tables have transformed and developed alongside the growth of startups.
  3. Reasons Behind the Increasing Complexity of Cap Tables: Unravel why, as a startup expands, the intricacies of its cap table heighten.

No matter if you're a budding entrepreneur striving to manage your startup's equity, an investor eager to understand your position, or just someone interested in the financial mechanics of startups, this guide will equip you with essential knowledge about the crucial role cap tables play in directing a startup's financial trajectory.

What is a Cap Table?

At the core of any startup's financial infrastructure lies the capitalization table, often referred to as the cap table. This term might sound intimidating, but we're here to break it down for you.


The cap table is a detailed spreadsheet or document that showcases the equity ownership in a company. It essentially provides a clear snapshot of 'who owns what' in a startup. This includes:

  • The names of all equity owners
  • The type of equity they possess
  • The number of shares owned
  • The percentage of total ownership their shares represent

The cap table is not a static document. It's a dynamic representation of a company's equity landscape, which alters over time as the company grows, secures additional funding, issues shares, or when stakeholders exit.

Components of a Cap Table

A cap table consists of several key components:

  1. Equity Holders: This includes individuals and entities like venture capital firms or angel investors. Each holder should be listed separately, even if an individual or entity holds different types of equity.
  2. Types of Equity: This may include common shares (often held by founders and employees), preferred shares (usually held by investors), and options or warrants that represent the right to purchase shares in the future. preferred shares may also include liquidation preferences. Liquidation preferences entitle the preferred shareholders to receive a certain amount of proceeds in the event of a company's liquidation or sale before any distributions are made to common shareholders.
  3. Number of Shares: This indicates the absolute quantity of the company each stakeholder owns.
  4. Percentage of Total Ownership: This is determined by comparing the number of shares held to the total number of shares issued by the company.
  5. Additional Details: The cap table might also detail the price paid per share by investors in different financing rounds and the total investment contributed by each stakeholder.

Who are the Stakeholders in a Cap Table?

A cap table encompasses a variety of stakeholders, each playing different roles and harboring different interests in the company. These typically include:

  • Founders: The individuals who initiated the company, often holding a substantial portion of its equity.
  • Investors: This category may encompass angel investors, venture capitalists, and others who have contributed funding in exchange for equity.
  • Employees: Many startups offer stock options as part of the compensation package, making employees equity stakeholders.
  • Other Stakeholders: This includes advisors, board members granted with equity, and other entities such as strategic partners or financial institutions.

Each stakeholder has a vested interest in the company's success, and the cap table serves as the official record of their respective ownership stakes.

Understanding Pro-Forma Cap Tables

While a standard cap table gives us a glimpse of a company's existing equity ownership, startups often experience a dynamic and shifting financial landscape. This is where a pro-forma cap table comes into the picture.


In essence, a pro-forma cap table is a future-facing projection of the cap table post a financing event or other modifications in the company's equity structure. The term "pro-forma", derived from Latin, means "as a matter of form" or "for the sake of form". In a business context, it's used to portray hypothetical scenarios or forecasts.

With regards to a pro-forma cap table, this document illustrates how the equity structure of the company would appear after a specific event, such as:

  • A funding round
  • A grant of additional stock options
  • The exercise of existing stock options or convertible securities.

This allows stakeholders to predict and comprehend how these future events might impact their ownership stakes.


Pro-forma cap tables prove incredibly useful during the planning stages of a startup, particularly when contemplating future financing rounds and equity distributions. Before a new funding round, a pro-forma cap table can illuminate the dilution of existing shares resulting from issuing new shares to investors.

The pro-forma cap table benefits not only founders, who can negotiate terms with potential investors more effectively, but also provides current stakeholders (like existing investors or employees with stock options) a clearer view of potential dilution of their ownership and the post-financing event worth of their equity.

Differences Between a Standard Cap Table and a Pro-Forma Cap Table

The key distinction between an ordinary cap table and a pro-forma cap table is their temporal orientation. A standard cap table mirrors the company's present equity ownership, whereas a pro-forma cap table is forward-looking, projecting future scenarios.

A pro-forma cap table takes into account future events and changes to equity, such as:

By doing this, it allows stakeholders to prepare for and understand potential outcomes ahead of time, thus serving as a valuable tool for decision-making and negotiations.

The Importance of Cap Tables

Cap tables serve as the DNA of a company, mapping out its equity ownership and playing an integral role for different stakeholders. They offer a clear view of the financial blueprint of a company and provide vital information necessary for decision making.

Importance for Company's Founders

  1. Understanding Dilution and Control: For a company's founders, the cap table is crucial in understanding the dilution and control of the company. As a company grows and raises capital, founders' equity stakes are typically diluted. By maintaining a clear and accurate cap table, founders can anticipate the impact of dilution on their ownership stakes. This aids in making informed decisions about fundraising and equity distribution.
  2. Decision-making Power: Furthermore, control over company decisions often correlates with equity ownership. Therefore, the cap table helps founders comprehend how their decision-making power might evolve as their company grows and additional shares are issued.

Importance for Investors

  1. Informing Decisions: For investors, a cap table is a vital tool to inform their decision-making process and their understanding of their ownership position. It provides them with a clear snapshot of the company's equity distribution, allowing them to calculate their share of any potential exit proceeds.
  2. Understanding ROI: Additionally, investors can use a cap table to gauge the impact of future financing rounds on their equity stake. This allows them to understand their potential return on investment and to plan their investment strategies effectively.

Importance for Employee Stock Option Planning

  1. Managing Equity Compensation Plans: The cap table is also important in managing equity compensation plans for employees. Many startups use stock options as a form of compensation and to incentivize employees. A cap table can help companies manage this process by keeping track of who has been granted options, how many, and when those options might be exercised.
  2. Employee Understanding: A cap table also helps employees understand their ownership stake in the company and how it may change over time, for example, due to future fundraising events or the exercise of other employees' options.

Importance for Potential M&A Activities

  1. Evaluating Offers: In potential merger and acquisition (M&A) activities, a cap table plays a pivotal role. When a company is being considered for acquisition, the cap table helps potential acquirers understand the company's ownership structure and evaluate their offer.
  2. Negotiations and Payouts: It also allows them to see who they'll need to negotiate with (majority shareholders, for instance) and who would receive payouts in the event of an acquisition. For these reasons, maintaining an accurate and up-to-date cap table is essential for any company considering M&A activities.

How are Cap Tables Used?

Cap tables are integral to the functioning of startups, investors, and professional advisors. Each stakeholder uses them differently, depending on their specific needs and interests.

1. By Startups

For startups, cap tables are not just about keeping track of equity distribution, but they also aid in strategic planning:

  • Equity Management: Startups use cap tables as a register to track the ownership stakes of all equity holders, including founders, co-founders, employees, and investors. This tracking becomes especially crucial when startups raise capital, issue shares, or grant stock options, which would require updates to the cap table.
  • Forecasting and Strategy: Cap tables aid startups in predicting the potential impact of future fundraising rounds or equity grants on existing ownership stakes. This understanding helps founders make informed decisions about financing and equity compensation strategies.

2. By Investors

Investors make use of cap tables before and after investing to assess their stake and return on investment:

  • Pre-Investment Analysis: Investors closely examine the cap table to gain insights into the company's equity structure, founders' ownership, the presence of any other investors, and potential for dilution in future financing rounds.
  • Post-Investment Tracking: Once invested, they continue to use the cap table to monitor their ownership percentage and comprehend how events—such as additional fundraising rounds, stock option grants, or conversions of convertible securities—impact their stake.

3. By Legal Advisors and Accountants

Legal advisors and accountants refer to cap tables for due diligence, auditing, and legal compliance:

  • Due Diligence: During a fundraising event or a merger and acquisition deal, these professionals review the cap table as part of their due diligence to verify the accuracy of the company's reported equity structure.
  • Auditing and Financial Reporting: Accountants may use the cap table for audit purposes or to calculate the fair value of the company's equity for financial reporting.
  • Legal Compliance: Legal advisors refer to the cap table to confirm the company is adhering to securities laws and regulations, such as ensuring that the company has not issued more shares than authorized.

In summary, a cap table is not simply a register for tracking ownership—it's a vital strategic tool that informs decisions, helps maintain compliance, and offers transparency about the company's equity structure.

How to Make a Cap Table

Creating a cap table may appear daunting initially, but it becomes a much more manageable task once you understand the necessary components. Here's a step-by-step guide to help you create your own cap table:

A. Necessary Information to Create a Cap Table

Creating a cap table requires specific details about your company's equity structure. These include:

  • Names of all equity holders: This should include anyone who holds shares, options, or convertible securities. Create separate entries for each class of security held by an individual or entity.
  • Types of equity held: Identify the different types of equity (such as common stock, preferred stock, options, warrants, convertible notes, etc.) that each stakeholder possesses.
  • Number of shares held by each stakeholder: This refers to the exact quantity of shares each stakeholder owns.
  • Percentage ownership: Highlight the stake of each holder as a percentage of the company's total shares.

B. Steps to Create a Cap Table

  1. List all Stakeholders: Start by identifying all the stakeholders - founders, investors, employees with stock options, and any other entities or individuals with a claim to the company's equity.
  2. Identify Classes of Equity: Distinguish between the various types of equity. Most startups have common stock (usually held by founders and employees) and preferred stock (held by investors). You may also have other classes of equity, like stock options, warrants, or convertible securities.
  3. Allocate Shares: Indicate the number of shares each stakeholder holds, differentiating between the different classes of shares.
  4. Calculate Percent Ownership: Calculate the percentage ownership by dividing the number of shares held by each stakeholder by the total number of outstanding shares.
  5. Continual Updates: Remember, a cap table isn't static. It's a dynamic document that should be updated with each equity transaction - including share issuance, fundraising rounds, equity grants, or exits.

C. Cap Table Template

Here's a simple template of how a cap table might look:

Remember, this is a simplified example. Real-world cap tables can be much more complex, especially as companies grow, add more stakeholders, and undergo various financial events.

How to use a cap table

A cap table isn't just a collection of data; it is, in fact, a powerful tool that provides comprehensive insights to strategize various aspects of a company's equity. The uses of a cap table are multifaceted:

1. Understanding Ownership Structure

A cap table primarily helps grasp the ownership structure of a company. It clarifies:

  • Who owns what in the company
  • The breakdown of the percentage of ownership
  • Types of equity owned
  • The number of shares owned by each stakeholder

Using a cap table, one can easily visualize the company's ownership structure, including the proportions owned by founders, employees, and various investor categories.

2. Evaluating Future Funding Rounds

Cap tables serve an essential role in strategizing future funding rounds. The pro-forma cap table provides a projection of post-funding ownership structure changes, thus enabling stakeholders to foresee potential dilution of their stakes. This critical insight allows startups to negotiate better terms with potential investors and make informed decisions.

3. Managing Employee Equity Compensation

Cap tables are also crucial in managing employee equity compensation. They meticulously record all granted stock options and ownership stakes, serving two key purposes:

  • They assist companies in devising their equity compensation strategies, ensuring they don't part with more equity than necessary.
  • They help employees understand their ownership stake and anticipate changes over time due to future funding rounds or the exercise of other employees' options.

4. Understanding the Impact of Dilution

Cap tables provide valuable insight into the impact of dilution. Dilution typically happens when new shares are issued, consequently reducing the percentage ownership of existing shareholders. By analyzing the cap table, shareholders can anticipate how future financing events, stock option grants, or conversions of convertible securities might dilute their stakes.

In conclusion, a cap table is an indispensable tool that guides various strategic decisions and financial planning for startups and their stakeholders. Mastering the use of a cap table is key to effective management and growth of a company's equity.

How to Maintain a Cap Table

A cap table isn't a static document. As a company evolves, it's crucial that its cap table accurately reflects the dynamic state of ownership. Below is a comprehensive guide on how to maintain a cap table:

1. Updating the Cap Table Regularly

Cap tables must be updated frequently to truly represent the company's ownership structure. Regular updates go beyond simply adjusting the number of shares owned by each stakeholder. They also include:

  • Adding new stakeholders
  • Modifying equity types
  • Adjusting percentage ownership as the total number of shares changes

Ensuring regular updates promotes transparency, aids in preventing potential misunderstandings or conflicts among stakeholders, and helps all parties stay informed about their current ownership stakes and any pertinent changes.

2. Events That Necessitate Updating the Cap Table

Certain events or transactions in a company's lifecycle require cap table updates. These include:

  • New funding rounds: Following a capital raise, new shares are typically issued to investors, diluting the percentage ownership of existing shareholders. Consequently, the cap table must be adjusted to reflect these changes.
  • Employee stock option exercises: When employees exercise their stock options, new shares are issued. The cap table should be updated to account for these new shareholders and their ownership stakes.
  • Company exits: Whether a company is acquired or goes public, the cap table must be updated. In an acquisition, the cap table aids in determining payouts to each shareholder. During an IPO, the cap table reflects the new public ownership structure.
  • Convertible notes or SAFEs conversion: When convertible notes or Simple Agreements for Future Equity (SAFEs) convert into equity (usually at the next financing round), the number of shares changes, warranting an update to the cap table.

3. The Role of Cap Table Management Software

As a company expands and its cap table becomes increasingly complex, manual management can prove challenging. This is where cap table management software proves invaluable.

Cap table management software simplifies the process of updating and maintaining the cap table. Notable benefits include:

  • Automated calculation of ownership percentages
  • Dilution tracking over time
  • Generation of pro-forma cap tables for future financing rounds

Certain software even provides additional features, such as managing investor relations, generating legal documents, and facilitating stock option exercises.

Examples of popular cap table management software include Carta and AngelList, among others. These platforms offer robust solutions designed to streamline cap table management.

In summary, maintaining an accurate and regularly updated cap table is pivotal for managing a company's equity. It fosters transparency among stakeholders and supports strategic planning and decision-making.

How Do Cap Tables Evolve Over Time?

Cap tables are dynamic documents that transform and evolve as a company progresses. This evolution occurs from a company's inception, through various funding rounds, up to any potential exit events. The structure and complexity of a cap table grow over time, mirroring the company's journey.

At Different Funding Stages

  • Startup: Initially, a cap table may only include the founders who split the company's initial equity.
  • Growth and Expansion: As the company grows, it may invite external funding in several rounds such as Seed, Series A, Series B, etc. New investors with various equity types (e.g., preferred stock) enter the cap table. Their shares often come with unique terms and rights, increasing cap table complexity.
  • Increasing Shareholders: Over time, the number of shareholders tends to rise as employees exercise stock options, and the company may grant equity to advisors or other service providers.

Impact of Dilution on Cap Table Evolution

  • Issuing New Shares: Whenever a company issues new shares, either to investors in a funding round or to employees exercising stock options, existing shareholders' percentage ownership is diluted.
  • The Dilution Paradox: Dilution reduces each shareholder's relative ownership percentage. However, if the funding round elevates the company's total valuation, the absolute value of an existing shareholder's stake might still increase despite the dilution.

Examples of Cap Table Evolution

  • Inception: A startup with two founders at inception might have a simple cap table, with equity split 50/50.
  • Seed Funding: With a seed round of funding, the cap table expands to include the founders and the seed investors. Despite the dilution of founders' percentage ownership, their stake's value might increase with the company's valuation growth.
  • Series A and Beyond: Further funding rounds, such as a Series A, add more investors to the cap table. All earlier stakeholders get diluted, but the value of their stakes could still rise if the company's valuation increases with the funding round.

In conclusion, a cap table serves as a reflection of a company's story, showing its financial journey from a small startup to a large, possibly publicly traded, organization. Its evolution and increasing complexity signify the growth and progress of the company.

What Information Does the Cap Table Keep Track of?

A cap table serves as a detailed snapshot of a company's ownership structure, providing crucial data on how ownership is divided among various stakeholders. Here's a breakdown of the key information a cap table maintains:

1. Ownership

  • At its core, a cap table details the percentage ownership of all equity holders, including founders, investors, and employees.
  • Each entry specifies the stakeholder's name, number of shares owned, type of equity held, and their percentage ownership of the total shares.

2. Stock Options

  • The cap table keeps track of stock options, often granted to employees as part of their compensation.
  • Key details include the number of options granted, their exercise price, and the vesting schedule.
  • It also includes information about the reserved option pool—a set of shares kept aside for future issuance to employees. Changes to this pool during funding rounds are reflected in the cap table.

3. Convertible Notes

  • Convertible notes or convertible debt—short-term debt that converts into equity during the next funding round—are monitored in the cap table.
  • This section includes information about the principal amount, interest, and conversion terms. Until conversion, these notes are typically listed separately in the cap table.

4. Warrants and Other Securities

  • The cap table tracks warrants, SAFEs (Simple Agreements for Future Equity), and other convertible securities.
  • Similar to convertible notes, these securities are typically converted into equity during future financing events. The cap table lists the quantity, terms, and conditions associated with these securities.

5. Preferred Shares

  • Investors frequently receive preferred shares that come with specific rights and privileges, such as priority in payouts and voting rights.
  • The cap table records these preferred shares' details, including the series (e.g., Series A, Series B), the number of shares, and the percentage ownership they represent.

In conclusion, a cap table serves as a comprehensive ledger for all forms of equity in a company, tracking changes from the company's founding to the present. This wealth of information equips stakeholders to make informed decisions regarding their investments and the company's strategic direction.

Cap Table Example

Let's walk through an example to illustrate what a cap table might look like for a hypothetical startup:

This startup has two founders and has gone through two rounds of financing. Here's how their cap table could look after their Series A:

Explanation of the Example

In this scenario, the founders initially owned 100% of the company. When they raised their seed round, they issued 1,000,000 new shares, diluting their ownership to 80% (8,000,000/10,000,000). The seed investors now own 10% of the company (1,000,000/10,000,000).

When the company raised their Series A round, they issued another 1,000,000 shares, further diluting the founders and seed investors' ownership. The founders now own 40% each (4,000,000/10,000,000), and the seed investors' ownership has been diluted to 10%. The new Series A investors also own 10% of the company.

This example illustrates the basic principles of how cap tables work and how they evolve over time as companies go through funding rounds and issue new shares.


A capitalization table, or cap table, is an essential tool for any startup or private company. As we've seen throughout this guide, a cap table serves as a ledger that provides a comprehensive view of a company's ownership structure. It breaks down the equity ownership by stakeholder, including founders, investors, and employees, and helps to track the distribution and dilution of shares over time.

The cap table is not just a simple spreadsheet but a dynamic document that evolves alongside the company. Each round of funding, each equity distribution, and each stock option exercise necessitates an update to the cap table. This highlights the importance of diligent cap table maintenance, which can be streamlined with the aid of cap table management software.

Cap tables play an instrumental role in a company's strategic planning. By facilitating an understanding of ownership structure, they enable startups to plan future funding rounds and manage employee equity compensation. They also help anticipate the impact of dilution in future funding rounds. For investors, cap tables offer insight into their stake and potential return on investment, proving crucial for informed decision-making.

We also looked at pro-forma cap tables, which are forward-looking versions of the cap table used for planning upcoming investments and equity distributions. And although cap tables are typically not public information, they may become so in certain situations, such as during an Initial Public Offering (IPO) or litigation.

In conclusion, understanding how to create, read, and manage a cap table is a critical skill for founders, investors, and anyone involved in the world of startups and venture capital. By keeping an accurate and up-to-date cap table, companies can ensure transparency among stakeholders and pave the way for successful financial planning and equity management.