What is a cap table?

A table in uppercase letters, or “cap tables,” is simply a spreadsheet that shows who owns the company’s contents. If you are asking this question, you are probably trying to figure out how your startup is tracking stocks, percentages of ownership, and types of stocks or options. It’s a simple but important tool for founders, investors and employees to keep an eye on the fairness and understand how things change after each fundraising.

Let’s walk through what it is, why it is important, how to set it up when it is necessary, how to avoid some common mistakes.

Disassemble the cap table with a simple example

Let’s say there’s a startup called TechTrend Innovations, founded by Alice and Bob. They start with 1 million shares, each splitting equally over 500,000. That’s their first cap table. Basics. Two shareholders. Each owns 50%.

Let’s say they’ve collected a million dollar seed rounds from an angel investor named Claire. She acquires 200,000 shares. The total shell account will jump to 1.2 million. Alice and Bob each hold 41.67%, while Claire scores 16.67%. This is how the cap table is adjusted with each ownership change. Track numbers and keep everything transparent.

Why startups need cap tables

The cap table is a reliable reference point for ownership. If you’re raising funds, issuing stock options, or thinking about exits, this table is where it all starts.

If Alice and Bob were touting VCs without a solid cap table, there was a risk of confusing and alienating investors. The numbers must be summed. Messy cap table raises a red flag. It is also a matter of compliance, especially when the tax, audit or the company is acquired.

It’s equally important for team members. Let’s say TechTrend hires engineer Dana and offers 50,000 shares as an option. After the investment, it is 4.17%. When you see these numbers spelled out, everyone is invested together.

When you need a cap table

Even if you are two founders, you will need a cap table from day one. It doesn’t have to be complicated at the beginning, but as soon as you bring investors and employees into equity, your interests will increase.

For example, during Series A, TechTrend could issue an additional 300,000 shares to VC companies. This means more dilutions. Alice and Bob’s ownership will be reduced to about 35% each. The cap table clearly states that shift. And if an acquisition occurs, for example, if the company is on sale for $20 million, then decide who will leave what. Claire’s 16.67% would be $3.33 million. Dana’s options? That’s also her payday.

It also helps with employee grants, convertible memos and more. If it is not kept up to date, confusion or conflict is right around the corner.

What fits in the cap table template

The basic template includes name, number of shares and ownership rate. A more detailed version adds shared classes (common or preferred), price per share, vesting schedules, and liquidation preferences.

For example, after Series A in TechTrend, it looks like this:

This structure could grow as the company adds more stakeholders. But even the simple version gets the job done early.

Example of cap table (credit: slide bean)

How to build a cap table

Start with the total number of stocks, like TechTrend’s 1 million. Assign them to the founder. Then put everything in a spreadsheet. Excel or Google Sheets works fine.

Next, include the columns: shareholder name, stock class, number of shares, percentage of ownership. You can calculate ownership by dividing the shares you own by the total number of shares.

We evaluate it every time a new round, grant, or change is made. If Claire wins 200,000 shares, the total increase, percentage will change. Make sure mathematics checks out and cross-references with legal documents.

As things become more complicated, tools like Karta and Pulley can come in handy. But early on, a clean spreadsheet can carry you far.

Use the cap table the correct way

The real value of a cap table is how you use it. Please update. Use it to discuss with investors, negotiate terms and to help employees understand their fairness.

If a VC company wants to see the ownership breakdown before investing, the clean cap table gives you confidence. If Dana wants to estimate what her options are, that’s fine.

Skip updates or forgetting to grants can put confusion or even worse, legal issues at risk. The cap table is more than just a form. It’s a part of everyday life.

A practical example of how a cap table is used

Take Foodietech, a startup with a messy cap table. They had three founders, two early investors and no clear records. Just before Series B they found a surprise. We are not using an option pool that does not have 100,000 shares. Correcting that error will result in a legal fee of $50,000. Can it be avoided? absolutely. All they needed was a clean spreadsheet and attention to detail.

Final Thoughts

The cap table starts off simple. Just the name and number. But as the company grows, it becomes a blueprint for everything equity-related. Whether you raise capital, issue options or acquire it, it’s a document you can’t afford to ruin.

For startups like TechTrend, keeping your cap table clean and up to date is more than just a practice. This is the difference between chaos and clarity.