TL;DR: A cap table is a record or ledger of who owns what in a company, every shareholder, option holder, warrant holder, and convertible instrument, with the percentage ownership each represents. It is a foundational document in any financing process and determines how exit proceeds are distributed among stakeholders.
A capitalisation table (cap table) lists all of a company's equity owners and the instruments that could become equity: common shares, preferred shares, stock options, warrants, convertible notes, and SAFEs. For each, it shows the number of units held, the price paid (if any), and the resulting (or eventual) ownership percentage.
Cap tables start simple (a founder or two, perhaps an early angel), and grow more complex with each financing round, option grant, and convertible instrument. Some non-equity terms in a financing round can have a dramatic effect on the cap table, particularly in a sale of the company.
For example, some equity rounds include a “liquidity preference,” which can give certain investors a minimum return on their investment (e.g., 2x), with seniority over other shareholders. In some cases, this means management, who often hold common shares, may receive significantly less than their ownership percentage might suggest.
Understanding a cap table, and the implications of its various structures and obligations, is critical for founders and investors alike.
Two versions of the cap table are commonly referenced:
The difference matters. A founder may own 55% on a basic basis but only 42% on a fully diluted basis once the option pool, outstanding convertible notes, and lender warrants are accounted for.
As companies grow, cap tables can become complicated. Keeping the cap table up to date with accurate records, documented exercises, and expired instruments removed, reduces friction in due diligence and downstream financing processes.
Who manages the cap table? Founders typically manage it early on, often in a spreadsheet. As the company grows, many use purpose-built tools and involve legal counsel to maintain accuracy.
Do lenders appear on the cap table? Not directly. Debt obligations appear on the balance sheet. However, if a lender has warrants, those would appear on the fully diluted cap table, or on the basic cap table once exercised.
What information do lenders need from my cap table? Lenders typically want to see the fully diluted cap table, including all outstanding shares, share classes, options, warrants, and convertible instruments, as well as the rights associated with each, so the impact can be calculated and evaluated under various scenarios. This allows them to understand the full ownership structure, confirm there are no undisclosed obligations, and assess how proceeds would be distributed in a potential exit.
How does venture debt affect my cap table versus an equity round? An equity round immediately adds new shareholders and dilutes all existing owners. Venture debt adds only warrant holders to the cap table, with dilution typically limited to 1–3% on a fully diluted basis and conditional on value creation.
Keep in mind that debt of any kind is senior to equity. This means it must be repaid first before proceeds are distributed to equity investors. So while debt is not reflected on a cap table, it does impact what shareholders may receive in a given scenario.
Related terms: Dilution
