Deal Terms & Term Sheets
What is a cap table and why does it matter?
A cap table (capitalization table) is a spreadsheet showing who owns what percentage of a company, including all shareholders, option holders, and warrant holders.
A cap table — short for capitalization table — is the master ledger of ownership in a startup. It lists every equity holder: founders, employees with stock options, angels, VCs, and anyone else with a stake in the company.
A simple cap table shows: - Who owns shares (or options/warrants) - How many shares each person owns - The type of shares (common vs. preferred, option vs. warrant) - The ownership percentage each person holds - The fully diluted ownership (assuming all options and warrants are exercised)
As a company raises more money and grants more options, the cap table grows more complex. By Series B, it's not uncommon to have dozens of stakeholders with different share classes, preferences, and anti-dilution adjustments.
Why it matters: the cap table determines who gets what in any liquidity event. A messy cap table — with too many small investors, multiple share classes, or complex side letters — can complicate or even kill future fundraising. Experienced investors scrutinize cap tables carefully.
For founders specifically: understand your fully diluted ownership at all times. It's your most important number. Tools like Carta and Pulley have replaced Excel for managing cap tables at serious startups.
Related glossary terms
Related questions
What is a term sheet?
A term sheet is a non-binding document that outlines the key terms of a proposed investment — valuation, amount, ownership percentage, and governance rights. It's the starting point for negotiating a deal.
What is a liquidation preference?
A liquidation preference gives investors the right to receive their money back before common stockholders (founders and employees) get paid in any sale or liquidation of the company.
What is an option pool and why do VCs require one?
An option pool is a set of shares reserved for future employee equity grants. VCs require it to ensure there's enough equity to attract and retain talent after they invest.