A Cap Table Is the Only Document That Says Who Owns What
Every financing, option grant, and convertible instrument changes it. Errors compound quietly for years and surface at the worst possible moment.
What It Records
A capitalisation table lists every holder of equity in a company, what class of security they hold, how many units, and what percentage that represents.
For an early stage company this is a spreadsheet. For a company several rounds in, it involves multiple preferred classes with different rights, an option pool with grants at various strike prices and vesting states, warrants, and convertible instruments that have not converted yet.
Issued Versus Fully Diluted
The most common misreading is the difference between these two counts.
Issued shares are those actually outstanding today. Fully diluted shares include everything that could become a share: unexercised options, the unallocated option pool, warrants, and convertible instruments on an as converted basis.
Ownership percentages calculated on issued shares are always higher than reality. Only the fully diluted number describes what you actually own.
The gap can be large. A company with 8 million issued shares, a 2 million share option pool, and convertible notes converting into another 1 million has 11 million fully diluted. A holder of 800,000 shares owns 10 percent on issued and about 7.3 percent fully diluted.
The Option Pool Trap
Investors typically require an option pool sized for future hiring, and negotiate for it to be created pre money, meaning before their investment is counted.
The consequence is that the entire dilution from the pool falls on existing shareholders rather than being shared with the incoming investor. A round at a 20 million pre money valuation with a 15 percent pool created pre money is economically a lower valuation than the headline suggests.
This is sometimes called the option pool shuffle. It is standard practice rather than a trick, and founders who do not model it are agreeing to a different price than they think they negotiated.
What a Complete Table Shows
| Element | Why it matters |
|---|---|
| Share class and rights | Preferences, votes, protective provisions |
| Fully diluted percentages | Actual ownership |
| Option strike prices and vesting | Which options are meaningful |
| Convertible instruments and terms | Conversion can shift ownership sharply |
| Preference stack by seniority | Who is paid first at exit |
A cap table showing only percentages, without the class rights and preference terms, is not enough information to value a holding. Two people with identical percentages in different classes can receive very different amounts.
Where They Go Wrong
Cap table errors are common and expensive. Option grants approved by the board but never documented. Advisor shares promised in an email and never issued. Convertible notes with terms nobody modelled. Vesting schedules that do not match the employment agreements. Departed employees whose exercise windows were handled inconsistently.
These surface during diligence for a financing or an acquisition, at the point when they are most disruptive and least fixable. Cleaning up a disputed grant during a sale process is a negotiation the company will lose.
Professional cap table management software exists largely because spreadsheets do not enforce consistency between the ledger and the underlying legal documents.
What Founders Should Track
Model the fully diluted position after each planned round, including the pool expansion each round will require. Founders consistently underestimate cumulative dilution because they model one round at a time.
Understand the preference stack as it accumulates, since it determines whether common equity has value at a given exit.
And keep the legal documents and the table reconciled continuously rather than at diligence, because reconstruction after the fact is where the disputes come from.
The Bottom Line
The cap table records who owns what across classes, options, and convertibles, and only the fully diluted view describes real ownership. Pre money option pools shift dilution onto existing holders and effectively lower the price being paid. Errors accumulate quietly and surface during diligence, which is the worst moment to discover that a grant was never properly issued.