Legal & Compliance
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Quick Answer
A thorough review of a company's capitalization table during due diligence to verify ownership percentages, outstanding securities, option pools, and any irregularities.
A Cap Table Audit is a comprehensive review of a startup's capitalization table conducted during investment due diligence to verify the accuracy and completeness of the company's ownership structure. The audit examines: all outstanding equity (common stock, preferred stock by series), convertible instruments (SAFEs, convertible notes, warrants), the employee option pool (authorized, granted, exercised, available), fully diluted share counts and ownership percentages, any anti-dilution provisions or special rights that affect conversion ratios, historical transactions and their compliance with corporate governance requirements, and any discrepancies between corporate records, transfer agent records, and the company's internal cap table. Cap table errors are surprisingly common—especially in companies that have done multiple SAFE rounds, had employee departures with option complications, or experienced founder transfers. Identifying and resolving cap table issues before an equity round prevents costly surprises at closing.
In Practice
During Series A due diligence, a cap table audit reveals several issues: two early angel SAFEs were never properly documented in the corporate records, a departed co-founder's stock repurchase was executed but the shares were not properly retired, and the option pool shows 50,000 shares granted to an advisor whose agreement expired two years ago. Resolving these issues delays closing by 3 weeks but prevents future disputes that could have been far more costly and disruptive.
Why It Matters
Cap table errors compound over time and become exponentially harder to fix in later rounds. A clean cap table is a prerequisite for institutional investment, and unresolved issues can kill deals or create legal liability. Founders should maintain accurate cap tables from day one and conduct internal audits before every fundraise.
VC Beast Take
Cap table audits have become make-or-break moments in today's competitive deal environment. We've walked away from deals worth tens of millions because founders couldn't explain their cap table cleanly in 30 seconds. The rise of platforms like Carta has eliminated most excuses for messy equity records. If a company's cap table requires a forensic accountant to decipher, that's often a red flag about broader operational discipline and founder attention to detail.
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A Cap Table Audit is a comprehensive review of a startup's capitalization table conducted during investment due diligence to verify the accuracy and completeness of the company's ownership structure.
Understanding Cap Table Audit is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Cap Table Audit falls under the legal category in venture capital. This area covers concepts related to the legal frameworks and compliance requirements in venture capital.
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