Cap table verification reconciles the spreadsheet with the share register, board approvals, option grants and outstanding convertibles, so investors know exactly what they own after the round.
11 min read · Level 3
Every cap table I have seen reconciled to legal records has had at least a small discrepancy, and I think that is normal rather than alarming. What matters is that the discrepancies are found before the price is set, because afterwards every one of them becomes someone else's dilution.
A cap table spreadsheet is a summary. The legal records are the share register, issuance documents, board and shareholder approvals, option grant agreements and convertible instruments.
Common discrepancies:
Found in diligence Effect Options promised by email, never board-approved claims that may need honouring or resolving SAFEs or notes missing from the cap table dilution nobody modelled Shares issued without required approvals validity of the shares in question Transfers not recorded in the register uncertainty over who owns what Advisers promised equity informally disputes and hidden dilution
Example reconciliation.
Cap table spreadsheet, shares outstanding 10,000,000 Share register 9,600,000 Difference 400,000 (options promised to two employees, never approved)
Also found: a 500,000 post-money SAFE with a 5,000,000 cap, not shown in the spreadsheet On conversion, that SAFE holder receives 500,000 / 5,000,000 = 10% of the company as measured at conversion
Because an investor's ownership percentage, and therefore their share of any exit, depends on the true number of shares and claims. Missing SAFEs or informal promises dilute everyone who did not know about them.
Defective share issuances can also cause problems at exit, when a buyer's lawyers check every issuance.
This is educational information, not legal advice. Rules differ by country and change — get advice from a qualified professional in your jurisdiction before acting.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
Sources: U.S. SEC - Investor.gov; UK Companies House - Register of members; Delaware Division of Corporations
Ownership before and after correction.
An investor expects to buy 20% in a priced round. After diligence:
Omitted SAFE converting to 10% of the company at the round Informal options to be formally granted: 400,000 shares
If the SAFE had not been found, the investor's 20% would have been calculated on a share count missing the SAFE's 10%, and the round would have been priced on a smaller base than reality. Every holder's percentage, including the new investor's, is affected once the SAFE converts. The investor asks for a corrected pro forma cap table showing the SAFE conversion and option grants before agreeing the price.
Relying on the cap table spreadsheet without reconciling it to the share register, board approvals and every convertible instrument.
Collect the share register, issuance approvals, option documents and convertibles.
Match every holder and number to a legal document.
Check emails, offer letters and adviser agreements for equity commitments.
Show ownership after the round, including conversions and new grants.
Before any investment in a private company.
Do not treat unresolved share issuance defects as merely administrative; take legal advice on validity and remedies.
Law firms and equity management platforms commonly advise startups to reconcile cap tables with legal records before fundraising, noting that missing option approvals, unrecorded convertibles and informal equity promises are frequent findings in investor diligence.
Clean-up is routine; discovering the problems during a live round is what causes delays.
Create a free account to read the rest and apply it to your own investing.