📖 Business
Cap Table Literacy
A capitalization table (cap table) tracks who owns what in a company — every share, option, warrant, and convertible instrument, along with the price paid and the resulting ownership percentage. Feld and Mendelson argue that every founder must be able to build and maintain their own cap table model, because if you can't model how ownership changes through fundraising rounds, you're negotiating blind. The cap table is not just an accounting artifact — it's the definitive record of economic reality in a venture-backed company.
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How It Works
Core columns in a cap table:
- Shareholder name and class of stock (common, preferred Series A, preferred Series B, etc.)
- Number of shares held
- Price per share paid
- Ownership percentage (basic and fully diluted)
- Investment amount
Critical concepts:
Pre-money vs. post-money valuation:
- $10M pre-money + $2M investment = $12M post-money
- Investor owns $2M / $12M = 16.7%
- Founders are diluted from 100% to 83.3%
Option pool placement:
- VCs almost always require the option pool be created BEFORE their investment (included in pre-money)
- This dilutes founders, not the VC
- A "20% option pool" on a $10M pre-money means $2M of that valuation is reserved for employees — the effective pre-money for founders is $8M
Fully diluted shares:
- Includes all outstanding shares PLUS all options (vested and unvested), warrants, and convertible instruments
- This is the "true" ownership picture — basic share counts are misleading
Dilution across rounds:
- Each funding round reduces everyone's percentage ownership
- A founder who starts at 50% might own 15-20% after Series C — and that's a good outcome
- The goal is not to minimize dilution but to maximize the value of what you own