equity
Cap Table Basics for First-Time Founders
You've agreed the split, shaken on it, maybe even signed something. Then an investor or an advisor asks to see your cap table, and you realise you're not totally sure what to send them, or whether the numbers in your head are even right. A cap table, short for capitalisation table, is just the list of who owns what in your company: every founder, every investor, every share, and the percentage each of those adds up to. That's the whole thing. It matters because this one simple list is what decides how much of your own company you actually keep, and first-time founders tend to give away more of it than they need to, usually without noticing until it's expensive to undo.
What a cap table actually is
Two numbers describe any owner: how many shares they hold, and what percentage of the company that is. The share count is the real thing you own, a fixed number. The percentage is just that number divided by all the shares that exist. People fixate on the percentage because it's the one that sounds like ownership, but the share count is the one that doesn't move around under you, so it's worth getting comfortable with both.
There's one more distinction that trips people up early: authorised versus issued shares. Authorised is the total number your company is allowed to create, a ceiling you set in the paperwork. Issued is how many you've actually handed out. You'll usually authorise more than you issue on day one, so there's room to bring in a co-founder later, set aside an option pool, or sell shares to an investor without redoing everything. The percentages on your cap table are worked out from issued shares, not the authorised ceiling.
How to read one: a worked example
Let's say two of you start a company and split it 60/40, and you decide the company has 10,000,000 shares to begin with. The cap table is this small:
| Holder | Shares | Ownership |
|---|---|---|
| You | 6,000,000 | 60% |
| Co-founder | 4,000,000 | 40% |
| Total | 10,000,000 | 100% |
That's a complete cap table. It looks almost too simple to bother writing down, and at this stage it nearly is. The reason to build it now anyway is that it never gets simpler than this again. Every hire, every grant, and every round adds a row, and the habit of keeping it exact is much easier to start when there are two rows than when there are twenty.
Why the numbers change every time you raise
Here's the part that surprises people. Let's say you raise a round and an investor buys 20% of the company. To give them that 20%, the company issues new shares, it doesn't take existing ones from you. So you create 2,500,000 new shares and hand them to the investor, and now there are 12,500,000 shares in total.
Look at what happens to your own line. You still hold your 6,000,000 shares, the exact same number as before. But 6,000,000 out of 12,500,000 is 48%, not 60%. Your co-founder drops from 40% to 32% the same way. Nobody took anything from you; there are simply more shares in total now, so your unchanged 6,000,000 is a smaller percentage of the company. That's dilution, and it happens every time you issue new shares, whether for investors or for a pool of options for future hires.
Dilution isn't a bad thing in itself. Owning 48% of a company that raised money and can now actually build something is usually worth far more than 60% of one that couldn't. The thing to avoid is being surprised by it. This is also exactly why it's worth tracking share counts and not just percentages: your 6,000,000 didn't change, and that fixed number is what you reason from when you're working out what a new round does to everyone. Before you get anywhere near this stage you need the split itself to be solid, which is covered in how to split equity between co-founders.
The early mistakes that quietly cost you
Most cap table damage isn't dramatic. It's small, reasonable-seeming shortcuts that compound. A few that come up again and again:
- Tracking percentages instead of shares. Percentages drift every round and can't be added up cleanly. Share counts are fixed and exact. Record the shares, and let the percentages be calculated from them.
- Forgetting the option pool. If you plan to hire, you'll set aside a chunk of equity for those people, often 10% or so. That pool dilutes you the moment it's created, not when it's handed out, so leaving it off your fully diluted view makes you look like you own more than you really will.
- Promising equity out loud. "We'll sort you out with a few percent" is not on any cap table, but the person you said it to remembers the number exactly. Every grant should be a real number of shares, written down and signed.
- Skipping vesting. Handing someone their full stake on day one means a co-founder who leaves in month three keeps it all. Put every founder's equity on a schedule, yours included. There's more on how that works in founder vesting explained.
- Issuing shares with no paperwork. A cap table is only as good as the signed documents behind each row. If you're in the US, there's also an 83(b) election that founders usually want to file within 30 days of getting restricted stock, and it's the kind of deadline that's painful to miss.
If you can't say, off the top of your head, how many shares exist and how many you hold, your cap table has already started to drift. That's the moment to sit down and reconcile it against the signed paperwork, while it's still small enough to fix in an afternoon.
When to start one, and what to keep it in
Start on day one, the moment more than one person owns a piece of the company. A spreadsheet is genuinely fine at the beginning: a row per holder, their share count, and a formula for the percentage. The tool barely matters. What counts is that every change gets recorded and signed as it happens, rather than pieced back together from memory when an investor asks.
At some point, usually around your first priced round, a spreadsheet stops being enough and it's worth moving to proper cap table software that models rounds, pools, and dilution for you. Until then, keep it plain and current, and hold on to the documents that back up every line. Get that habit right early and the cap table stays a boring, honest record of what you own, which is exactly what you want it to be.
Frequently asked questions
- What is a cap table?
- A cap table, short for capitalisation table, is the list of who owns what in your company: every founder, every investor, the number of shares each one holds, and the percentage that works out to. It is the record that shows how ownership is split today and how it changes as you grant equity or raise money.
- What does fully diluted mean on a cap table?
- Fully diluted means you count every share that could exist, not just the ones issued today. It includes the option pool set aside for future hires and anything you have promised, so nobody is surprised when those shares get handed out and everyone's percentage drops.
- When should founders create a cap table?
- On day one, the moment more than one person owns a piece of the company. A simple spreadsheet is fine at the start. What matters is that every change to who owns what is recorded and signed as it happens, rather than reconstructed from memory a year later.