Cap Table Explained: How to Read and Model Ownership

A cap table (capitalization table) is the list of everyone who owns a piece of your company, how many shares or rights they hold, and what percentage that represents. At founding it might be two rows. After a few funding rounds and an option plan it becomes the most important spreadsheet in the company, because it decides how money is split when the company is sold and who controls key decisions.

This guide explains how to read a cap table, the difference between issued and fully diluted ownership, and how each funding round changes the numbers. A worked example follows every concept, and you can reproduce all of them in the funding dilution calculator.

What a cap table contains

At minimum, a cap table has one row per holder and columns for the security they hold. A useful one also tracks how those holdings came about.

Column	What it records
Holder	Founder, employee, investor, advisor or the unallocated option pool
Security type	Common shares, preferred shares, options, warrants, SAFEs, notes
Number of shares	Issued shares, or shares underlying options and warrants
Issue price	What was paid per share (zero or nominal for founders)
Date and round	When the holding was created and in which financing
Vesting	Schedule, start date and how much has vested
Ownership %	Share count divided by the total, on an issued or fully diluted basis

The rows are usually grouped: founders and common shareholders first, then the option pool (split into granted and still available), then each class of preferred shares by round, then convertible instruments that have not converted yet.

Shares, not percentages

The most common beginner mistake is to think about ownership in percentages only. Companies issue shares, and percentages are a result of dividing one share count by another. When a new investor joins, nobody hands over a percentage. The company issues new shares, the total grows, and everyone else's percentage falls while their share count stays the same.

That is dilution in one sentence: same number of shares, smaller slice of a (hopefully) bigger company.

Issued vs fully diluted ownership

There are two common ways to calculate percentages:

• Issued (outstanding) basis: only shares that actually exist today. Options that have not been exercised are left out.
• Fully diluted basis: issued shares plus every share that could exist through options (granted and ungranted), warrants and similar rights. Depending on the agreement, convertible instruments may also be included.

Investors almost always negotiate on a fully diluted basis, because they want to know what they own after every promised share has been created. If an investor offers "20% for €1 million", ask whether that is 20% fully diluted, and what is included in "fully diluted". The answer changes the price per share.

Worked example: from founding to seed

Founding. Two founders incorporate and issue 10,000,000 common shares, 5,000,000 each. The cap table is simple: each owns 50%.

Seed round. A hypothetical investor offers €1,000,000 at a €4,000,000 pre-money valuation, so the post-money valuation is €5,000,000 and the investor ends up with 20%. The term sheet also requires an option pool equal to 10% of the post-money fully diluted shares, created before the investment. (The difference between pre-money and post-money is covered in detail in pre-money vs post-money valuation.)

Because the founders keep their 10,000,000 shares and must end up with 70% (100% minus 20% for the investor minus 10% for the pool), the new total is 10,000,000 / 0.70 = 14,285,714 shares.

Holder	Shares before	% before	Shares after seed	% after seed
Founder A	5,000,000	50.0%	5,000,000	35.0%
Founder B	5,000,000	50.0%	5,000,000	35.0%
Option pool	0	0.0%	1,428,571	10.0%
Seed investor	0	0.0%	2,857,143	20.0%
Total	10,000,000	100%	14,285,714	100%

The price per share is €1,000,000 / 2,857,143 ≈ €0.35. Check it from the other side: the pre-money valuation of €4,000,000 divided by the pre-money fully diluted shares (10,000,000 founder shares + 1,428,571 pool shares) is also ≈ €0.35. When both numbers match, the model is consistent.

Notice what the pool did. It was created before the money came in, so only the founders were diluted by it. Their shares are worth 10,000,000 × €0.35 = €3,500,000, not €4,000,000. That gap is often called the effective pre-money valuation, and it is why the employee option pool is a negotiation point rather than a formality.

Worked example: adding a Series A

Eighteen months later, the company raises €3,000,000 at a €12,000,000 pre-money valuation (€15,000,000 post-money). The new investor gets 3 / 15 = 20%. To keep the example simple, assume no pool top-up this time.

Every existing holder is diluted by the same factor: they keep 80% of their previous percentage.

Holder	% after seed	% after Series A
Founder A	35.0%	28.0%
Founder B	35.0%	28.0%
Option pool	10.0%	8.0%
Seed investor	20.0%	16.0%
Series A investor	0.0%	20.0%
Total	100%	100%

If the Series A investor had also asked for the pool to be refreshed to 10% post-money, the founders and seed investor would have been diluted further. Running both versions side by side in the dilution calculator shows the difference in seconds.

How convertibles show up

Many first rounds are raised with SAFEs or convertible notes rather than priced equity. These instruments do not create shares on day one, so they sit in their own section of the cap table with the amount invested, the valuation cap, any discount and, for notes, the interest rate.

The tricky part is that their impact is invisible until they convert, usually at the next priced round. A founder who raised several SAFEs at different caps can be surprised by how much ownership they convert into. A good cap table includes a "pro forma" tab that shows ownership after conversion under realistic assumptions. For how the instruments differ, see SAFE vs convertible note.

Preferred vs common shares

Investors in priced rounds typically receive preferred shares. On the cap table they count like any other share for ownership percentages, but they come with extra rights defined in the shareholder agreement or articles, for example:

• Liquidation preference: investors get their money back (or a multiple of it) before common shareholders in a sale.
• Conversion rights: preferred shares can convert into common, usually one to one.
• Anti-dilution protection: adjusts the investor's conversion ratio if a later round is priced lower.
• Voting and consent rights on specific decisions.

Ownership percentage alone therefore does not tell you what each holder receives in an exit. A complete model has a separate "waterfall" that applies these rights to a hypothetical sale price. The exact terms vary widely between deals and countries, so have a lawyer explain the ones in your documents.

How to read a cap table someone sends you

Whether you are a founder joining a company, an early employee evaluating an offer or an angel doing diligence, read a cap table in this order:

1. Check the total. Do the percentages add up to 100% on the basis stated (issued or fully diluted)?
2. Find the founders' combined stake. It tells you how much incentive the operating team still has.
3. Look at the option pool. How much is granted, how much is still available, and is that enough for the hiring plan?
4. List every class of preferred shares and note the liquidation preference attached to each.
5. Find all unconverted instruments. SAFEs, notes and warrants can change the picture significantly.
6. Check vesting. Unvested founder or employee shares can be repurchased if people leave. The mechanics are covered in founder vesting schedules.
7. Ask what is missing. Promised but undocumented equity (to an advisor, an early freelancer, a former co-founder) is a common source of disputes.

Keeping your own cap table clean

A cap table is only useful if it matches the legal documents exactly. A short routine prevents most problems.

Checklist

• Every share issuance has a signed document and a board or shareholder resolution where required.
• Every option grant records the number, exercise price, grant date, vesting start and schedule.
• Departures are recorded immediately, including what vested and what returned to the pool.
• Convertibles list amount, cap, discount, interest and maturity date.
• One person owns the cap table and updates it after every change.
• The cap table is reconciled with the company register or share ledger at least once a year.
• A pro forma version models the next round before you start negotiating.

Common mistakes

Promising percentages instead of shares. "You'll get 1% of the company" is ambiguous: 1% today, or 1% after the next round? Grants should always be a fixed number of shares or options, with the percentage shown only as context.

Forgetting the pool when comparing offers. Two term sheets with the same headline valuation can leave founders with very different stakes if one requires a much larger pre-money pool.

Ignoring convertibles. Stacking several SAFEs without modelling conversion is one of the most frequent sources of unexpected dilution.

Handshake equity. Informal promises to early helpers create claims that surface during due diligence, when they are hardest to resolve.

Treating the spreadsheet as the legal record. The legal record is the signed documents and, depending on your country, the commercial register or share ledger. The spreadsheet is a model of it and must be kept in sync.

Modelling before you negotiate

The best time to understand your cap table is before a term sheet arrives. Build a simple model with your current holdings, then simulate the next one or two rounds with a range of valuations, investment sizes and pool requirements. You will quickly see which variables move founder ownership the most. In many cases it is the size of the pre-money option pool and the amount raised, not the headline valuation.

The funding dilution calculator runs this kind of simulation in your browser for up to three priced rounds. Treat its output as a planning aid. Final numbers depend on the exact terms in your legal documents, and corporate and tax rules differ by country, so involve a startup lawyer before you sign anything.