Who owns what, in what class, and what happens when the next round lands.
12 min read · Level 3
A cap table is the legal answer to what you own, and a messy one can stop a round entirely — undocumented promises, a departed co-founder with thirty percent, verbal advisor grants nobody wrote down. Percentages also mean less than they appear: founders hold common, investors hold preferred, and preferred is paid first. "I own forty percent" is only true after the preferences are satisfied.
A cap table lists every shareholder, how many shares they hold, what class those shares are, and what percentage that represents.
The classes matter as much as the numbers. Founders and employees hold common. Investors usually hold preferred, which carries rights common does not.
Because the cap table is the legal answer to 'what do I own', and because a messy one can block a round entirely.
Investors look at it early. Undocumented promises, a departed co-founder holding 30%, twenty tiny shareholders each with consent rights — any of these can stop a deal, and none are quick to fix.
Shareholder Shares Class %
Founder A 4,000,000 Common 40.0%
Founder B 3,000,000 Common 30.0%
Option pool 1,000,000 Common 10.0%
Seed investors 2,000,000 Preferred 20.0%
────────── ──────
Total 10,000,000 100.0%Things to read here:
Founder B has 30%, not 50%. Either they joined later or contributed less — either way, it should be a deliberate decision, not an accident.
The pool is 10% and unallocated. That is roughly three to five early hires. If you plan ten, it needs expanding, which dilutes everyone.
Seed investors hold preferred. On a sale, their preference is paid before the 80% of common holders see anything. A $10M sale with a $2M 1x preference pays them $2M first, then $8M splits across common.
So 'I own 40%' is only true after the preferences are satisfied.
First-time founders often keep the cap table in their head or a rough spreadsheet, including verbal promises: 'we said we would give the advisor 1%.' Undocumented equity is one of the most common things to derail due diligence.
The second mistake: reading percentages without checking vesting. A co-founder holding 30% who is nine months into a four-year vest has actually earned about 7.5%. Those are very different situations.
Including anything promised verbally. Write it down even if it is not yet documented — especially then.
Common or preferred. Preferred is paid first on a sale, which changes what percentages actually mean.
How much of each holding is actually earned to date, and what the schedule is.
How much is granted, and how much remains? Compare it against your hiring plan for the next 18 months.
Add the new investor's percentage and any pool expansion. Confirm you are comfortable with where everyone lands.
Signed agreements, not spreadsheets and memory. This is worth doing before you need it, because you will need it under time pressure.
Before every equity grant, every round, and any conversation about who owns what.
Pre-incorporation with one founder and no promises, there is nothing to track yet. Start the moment a second person is involved.
An email promising "about one percent" two years earlier, never documented, becomes a dispute during diligence when the advisor recalls it as two. There is no malice in this — memory diverges, always in the direction of the person remembering — and it stalls the round regardless.
Document every equity promise in signed paper the week it is made. Verbal grants are a liability that grows quietly.
A co-founder listed at thirty percent who is nine months into a four-year vest has earned closer to six. Reading the cap table without the vesting schedule beside it produces a completely wrong picture of who actually owns what today.
Track vested versus granted separately. They diverge most in exactly the situations where the difference matters.
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