A cap table (capitalization table) is the document that shows who owns the company and in what proportion. It lists shareholders, share classes, share counts, option pools and convertible instruments, and it lets founders and investors calculate dilution across rounds. A clean, accurate cap table is essential for fundraising, option grants and exits. This guide explains what a cap table is, how to read one, the difference between issued and fully diluted ownership, and the mistakes that cause problems at the worst moments.
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What a cap table is
A cap table is a record of who owns the company's equity. At its simplest, it lists each shareholder, the number and class of shares they hold, and the percentage of the company that represents. As the company grows, the cap table expands to include option pools, convertible instruments, and different share classes with different rights.
The cap table is not just a spreadsheet — it is the legal map of ownership. It must match the underlying documents: every share issuance, option grant and convertible instrument should be traceable to a signed agreement and the relevant board and shareholder resolutions.
Why it matters: Investors, employees and acquirers all rely on the cap table to understand ownership. An inaccurate cap table can delay a round, derail an acquisition, or cause disputes among founders.
How to read a cap table
A cap table typically shows, for each holder: name, share class, number of shares, ownership percentage (issued), and ownership percentage (fully diluted). Share classes matter because different classes can have different rights — voting, liquidation preference, dividend — that change the economic reality behind the percentages.
Reading a cap table means understanding not only the percentages but the rights attached to each class. A holder with 10% of the votes may have different economic rights than a holder with 10% of a different class. The cap table and the articles of association must be read together.
Issued vs fully diluted
Two numbers matter on any cap table: the issued (or outstanding) percentage and the fully diluted percentage. The issued percentage reflects only the shares actually issued today. The fully diluted percentage reflects what ownership would look like if all options were exercised and all convertible instruments converted into shares.
Investors care about the fully diluted number, because it shows what they will actually own after everything that can convert has converted. A founder who looks at the issued number alone can be surprised by how much their stake shrinks once the option pool and converts are included.
A founder holds 50% of issued shares. But there is a 15% option pool (unissued) and a SAFE that converts into 10% at the next round. Fully diluted, the founder's stake is meaningfully lower than 50%. Planning requires the fully diluted view.
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The option pool
An option pool is a block of shares reserved for future grants to employees, advisors and service providers. The pool is authorized but not yet issued; it sits in the cap table and dilutes the existing shareholders on a fully diluted basis. Investors typically require a pool of a certain size to be created (or expanded) as part of a round.
A common negotiation point is whether the pool is created before or after the investment. A pool created before the round dilutes only the existing shareholders; a pool created after dilutes the incoming investor as well. This seemingly technical point has a real effect on ownership.
For the employee side of options, see the Employee Stock Options guide.
Convertible instruments
SAFEs and convertible loans appear in the cap table as outstanding instruments that will convert into shares at a future event. They are not shares yet, but they affect the fully diluted picture once their conversion terms are modeled.
Each convertible instrument has its own cap, discount and conversion mechanics. Modeling them together is essential — multiple SAFEs with different caps can produce a fully diluted cap table that surprises everyone at the priced round if it has not been tracked along the way.
How dilution works
Dilution is the reduction in an existing shareholder's percentage when new shares are issued. When a company issues new shares to an investor, the total share count increases, and every existing shareholder's percentage decreases — unless they participate in the new round to maintain their position.
Dilution is not inherently bad — it reflects the company raising capital that (hopefully) increases the value of the whole pie. The question is whether the dilution is proportionate to the value being added. Modeling dilution before signing a term sheet lets a founder see what they will own after the round, not just the headline valuation.
Modeling: Before any round, the founder should model the post-money cap table: existing holders, the new investor, the option pool, and any converting instruments. The result shows the real ownership after the deal.
Keeping it accurate
A cap table is accurate only if it is maintained as events happen — not reconstructed later. Every share issuance, option grant, SAFE, convertible loan and transfer should be recorded immediately, with the supporting documents and resolutions.
- Record every share issuance with the share purchase agreement and resolutions.
- Track every option grant under the option plan.
- Add each SAFE and convertible loan with its full terms.
- Reconcile the cap table against the company's records regularly.
- Model the fully diluted picture before every round.
If your cap table is unclear or undocumented, it should be reconstructed and reconciled before approaching investors. The Investment Agreements service covers this end to end.
Checklist
Common Mistakes
Frequently Asked Questions
Related pages
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Adv. & Notary Zion Bahalul
Startup Lawyer · Israel
Adv. Zion Bahalul provides legal counsel to founders, startups, tech companies and investors — from incorporation through fundraising, IP and ongoing counsel. Services in Hebrew, English and Spanish.
The information on this site is general information only and does not constitute legal advice. Each case depends on its circumstances, and it is advisable to obtain individual legal advice before making a decision or signing a document.