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What Is a Cap Table?

Fri Aug 12 2022

5 min read

what is a cap table

Key takeaways

  • Capitalization tables are spreadsheets that give a detailed breakdown of a startup’s ownership. Every venture-funded startup has one.

  • Cap tables can give you essential information about a company, including how incentivized the various stakeholders are and how many shares employees have.

  • Many startups don’t share their cap tables with employees. However, this isn’t necessarily a red flag as long as you’re still able to keep yourself apprised of your company’s current Fair Market Value of common stock. 


Understanding company ownership

Every venture-funded startup has a cap table. Short for “capitalization table,” it is a spreadsheet that contains a detailed breakdown of a company’s ownership,  including the size of its employee stock option pool. A cap table is a crucial document that can provide valuable insight into a startup. Investors almost always request to review a startup’s cap table before investing.

What do cap tables contain?

The first thing to understand about cap tables is that there is no standardized format. Because there are no specific regulations surrounding cap tables (unlike audited financial statements for example), every company may use a slightly different format. 

Regardless of a startup’s cap table format, they should all contain the same information. This includes: 

  • Authorized and Outstanding Shares The number of shares the startup is authorized to issue and the number of shares that have been issued.

  • Shares Reserved for Employee Stock Option Pool When you exercise your stock options, the shares issued to you come from the employee stock option pool. The cap table will list how many shares are allocated to the employee stock pool.

  • Shareholder Details Who are the actual investors in your startup? The cap table should list all the details of the investors, including how many shares they own, the types of shares they own, and how this corresponds to their total percentage ownership of the company.

  • Other Types of Financing It is not uncommon for startups to issue securities that will eventually convert into equity, such as convertible debt and SAFEs. Because these technically have yet to translate into actual shares, they will usually not be listed in the “main” portion of the cap table. But the relevant details of these types of securities should still be documented somewhere, even if in a separate section.

As a startup matures and takes on more investors, cap tables become increasingly complex; properly managing a cap table is a skill that successful startups must master.

What can the cap table tell you about your company?  

Cap tables can tell you a lot about the state of a startup – whether you’re an investor or an employee. Here are a few things you can glean from them:

  • How Incentivized the Various Stakeholders Are By looking at how much each stakeholder owns, you can see how motivated each may be. For instance, your startup may have famous VCs – but how incentivized are they? This concept also extends to the founders. If the founders’ ownership stakes have been severely diluted, they may be less motivated to drive the company forward.

  • How Much the Startup Values Its Employees Equity is a big reason startup employees are often willing to receive lower base compensation than corporate jobs. In that respect, the details of the employee option pool listed in the cap table can indicate how much your startup truly values its employees. While multiple factors are at play, comparing the pool size with the number of employees (to gauge the average size of individual equity grants) can be telling. Make sure you compare startups across similar stages to avoid comparing apples to oranges.

👉 How fair is your equity package? Check out the Equity Fairness Calculator to compare equity at startups across similar stages.

  • How the Value of Your Stock Options Could be Affected by a Liquidity Event The proceeds aren't shared equally if your startup is acquired or liquidated. The preferred shareholders (usually the investors and VCs) typically have liquidation preferences and that legally gives them first dibs on the proceeds before the common stockholders such as the employees. This may be included in the cap table.

Is it an automatic red flag if your company won’t share its cap table with you? 

Short answer: no. You may be surprised to learn that not all startups share their cap table even with prospective investors. While sharing it is common, it is not the rule. Some startups may be worried that sharing their cap table with too many parties (even VC funds) may risk leaking confidential business information.

Like most things in the venture world, it comes down to market forces and negotiation leverage. How much will not being transparent with its cap table hurt a startup’s ability to attract investors or talent?

Most startups are unlikely to share their cap tables with employees. Potential breaches of confidential information are a significant (and understandable) concern, especially considering that there are far more employees than investors.

Do you know the most recent valuation for common shares?

The Fair Market Value of any common shares you would receive after exercising your options depends on the company’s most recent 409A valuation. As long as you know your company’s latest Fair Market Value for common shares, you will always be able to calculate the value of your stock options. 

Find out if your company makes it a policy to keep employees apprised of the latest per-share valuations. 

👉  Creating a Vested dashboard can help you keep track of the Fair Market Value (FMV) of your shares with automated updates.

Ultimately, it’s far more critical to know the Fair Market Value of your common shares than what’s inside the cap table for your company. However, if you’re joining a very early-stage company, remember that you’re likely to go through additional fundraising and thus dilution. Our pro-tip? Negotiate for a little more equity.

This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for investment, tax, legal, accounting, or other professional advice. Vested does not provide investment, tax, legal, accounting, or other professional advice. You should consult your own investment, tax, legal, accounting, or other professional advisors before engaging in any transaction or equity decision.  


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