A Beginner VC’s Guide to Cap Tables

Who’s Got the Keys to the Company?

What Is the Cap Table?

The cap table, short for capitalization table, is an illustration containing a company’s ownership percentages after each round of funding.

In this piece, I will provide an overview of the capitalization table and some of the vocabulary surrounding it, and then I will delve into examples to help you understand the mechanics of the cap table.

Intro to the Cap Table

In a previous post, I gave an overview of the term sheet. The negotiated items on the term sheet have a direct impact on the mechanics of the cap table. Investors should try to obtain the most favorable terms possible while still treating the entrepreneur equitably and with respect. The post is worth reviewing, as I define some of the terms that are relevant to the capitalization table and talk about them in depth. I also wrote a post on startup valuation, which is also worth a look to refresh yourself on the mathematics of funding rounds both pre-investment and post-investment.

Why Is It Important?

Knowing how the capitalization table is affected over time will help you better understand your gains upon the firm’s IPO or sale, and ultimately, how much you make as an investor. The cap table is updated after each…