Cap table basics for first-time founders

• Investors think in fully diluted terms: shares, options, the pool and convertibles as if converted.
• File 83(b) elections within 30 days of the stock transfer; the IRS deadline has no fix if missed.
• SAFEs stack: three $500,000 SAFEs at a $5,000,000 post-money cap convert into 30% of the company.
• Size the option pool to your 18–24 month hiring plan, not an arbitrary percentage.
• Record every grant and SAFE the day it happens, with the signed document.

What a cap table is

A capitalization table, or cap table, is the record of who owns what in your company: every share of common and preferred stock, every option, every warrant, and every SAFE or convertible note that will turn into shares later. It's usually a spreadsheet or a cap table management tool, backed by the legal documents that created each line.

Investors look at your cap table in diligence to answer three questions. Do the founders own enough to stay motivated? Is there room to hire key people? Are there surprises, such as a former co-founder with 30% and no vesting, or a pile of notes nobody tracked? A clean cap table won't win you a round, but a messy one can lose you one. See also cap table in the glossary.

The terms you need

Set up founder equity correctly from day one

• Issue founder shares early, when the company is worth little, through a stock purchase agreement.
• Put founder shares on vesting. Investors expect it, and it protects every founder if a co-founder leaves early.
• File your 83(b) election on time. The IRS states that an 83(b) election must be filed no later than 30 days after the date the property was transferred. Missing it can create a large tax bill as shares vest. There is no fix for a missed deadline, so calendar it the day you sign.
• Assign intellectual property to the company from every founder and early contributor.
• Split equity deliberately. Equal splits are fine when contributions are equal. Write down the reasoning either way.

A worked example: from founding to seed

Hypothetical example, simplified: it ignores option pool increases at the seed round and assumes a single post-money SAFE.

Founding. Two founders each buy 4,500,000 shares. The company reserves a 1,000,000-share option pool. Fully diluted: 10,000,000 shares. Founders own 90%, the pool 10%.

Pre-seed. The company raises $500,000 on a post-money SAFE with a $5,000,000 post-money valuation cap. A post-money SAFE gives the investor ownership equal to the investment divided by the post-money cap: $500,000 ÷ $5,000,000 = 10% of the company when it converts (before the new seed money).

Seed. A year later the company raises $2,000,000 at an $8,000,000 pre-money valuation, so investors buy 20% post-money. The SAFE converts first.

How the numbers work: the SAFE converts into 10% of the pre-seed capitalization including itself (1,111,111 shares out of 11,111,111). Seed investors then buy 20% of the post-money company: 2,777,778 new shares at $0.72 each, which is $2,000,000. The founders went from 90% to 64.8% over two rounds. In real rounds, investors often ask to enlarge the option pool before the seed money comes in, which dilutes founders further. Model your own numbers with the SAFE dilution calculator.

Watch how SAFEs stack up

Because SAFEs don't appear as shares until they convert, founders often underestimate how much they've sold. Three $500,000 post-money SAFEs at a $5,000,000 cap don't feel like much individually, but together they convert into 30% of the company before your seed round. Keep a running fully diluted cap table that shows SAFEs as if converted, and update it after every check. See SAFE vs convertible note vs priced round.

Size the option pool to your hiring plan

A pool is not a fixed percentage; it's the equity you need to hire the people in your plan until the next round. List the roles you'll hire in the next 18–24 months and estimate grants for each. Investors at a priced round often ask for the pool to be topped up in the pre-money valuation, which means the dilution falls on existing holders, not the new investors. Know your hiring plan so you can argue for a pool that fits it rather than an arbitrary number.

Keep it clean

• Record every grant, SAFE and transfer the day it happens, and keep the signed document with it.
• Get board approval for option grants and keep the consents.
• Avoid "handshake equity" promised to advisors without a written agreement (advisors and boards).
• Resolve departed co-founders quickly: vested shares stay, unvested shares return under the agreement.
• Reconcile the spreadsheet with legal documents before every raise.
• Store the cap table and supporting documents in your data room (data room index).

A pre-raise cap table review

Two to four weeks before you start pitching, sit down with your lawyer and walk the cap table line by line. Confirm that every founder, employee and advisor holding equity has a signed agreement, that every SAFE and note is listed with its cap, discount and MFN terms, that board consents exist for each grant, and that the totals match your charter's authorized shares. Then build two views: the current fully diluted table, and a pro forma table showing ownership after the round you're about to raise. Investors will build that second view themselves; arriving with it already done shows you understand your own company and shortens diligence.

Questions investors will ask

• What do founders own today on a fully diluted basis?
• Are founder shares vesting, and were 83(b) elections filed?
• What SAFEs and notes are outstanding, with what caps and discounts?
• How large is the option pool, and how much is already granted?
• Has anyone been promised equity that isn't documented?