How to tell the story of your startup's cap table

The importance of a cap table in your startup's success

Cap tables, which outline the cap structure of a startup, are part of every successful founder’s life. They may seem simple at first but can get complicated quickly.

What is cap table management? It's the process of organizing and maintaining the company's equity distribution.

What is a cap table of a startup? A cap table, short for capitalization table, is a document that outlines the ownership structure of a company.

Cap tables reveal a lot about you and your company, including who holds the reins, who your trusted partners are and what kind of business chops you have. Getting them right—and correcting mistakes early—can save big headaches down the road and help impress potential financial partners and key hires.

Having a clean cap table is a signal to investors that your company is well-run and worth supporting with venture investment. This becomes especially important in challenging fundraising environments. According to data from Carta, startups on its cap table management platform raised 18.4% more capital in 2024 than in 2023—but they did so on 7.3% fewer total rounds. Investors are getting pickier and every detail matters.

As a startup founder, you’ve probably been told to read up on cap tables. Who prepares the cap table?  Typically, it's prepared by founders or financial advisors to outline ownership stakes. And yet, a cap table is really nothing more than a spreadsheet that shows who owns how much of your company. Each row may list a shareholder, their ownership percentage, the number of shares that percentage represents, the value of each share and a total value. How hard can it be? As it turns out, it can be plenty hard (though it doesn’t have to be).

Cap tables can be hard because your ownership structure will grow in complexity as your business gains traction. As new investors come in, the stakes of existing shareholders are diluted. You recruit employees, each with different starting dates, different option grants, vesting schedules and exercise dates. Some will no doubt leave before they’re fully vested. Your cap table must keep track of all this in precise detail along with materials like contact information and legal documents for all shareholders.

Essential resources for managing cap table

Fortunately, there are plenty of resources to help entrepreneurs with the nuts and bolts of cap tables.  These include basic explainers from trusted law firms like Cooley, a step-by-step explanation of cap tables from Carta, which offers cap table management tools. You’ll also want to read up on what to do about convertible notes, general record keeping and the link between cap tables tax and compliance regulations.

Fellow entrepreneurs suggest leaning heavily on these types of resources rather than trying to reinvent the wheel. “Spend your innovation cycles on things that will drive the success of the company,” says Patrick McKenzie, a serial entrepreneur at Stripe.

Tell your story through your cap table

The mechanics of cap tables are only part of the equation. How do you structure a startup cap table? Consider keeping it clear and updated, as it tells a story about your company. It’s a story that you will keep referring to when you make decisions about new financing and new hires, and perhaps someday when considering an exit. Perhaps more important, it’s a story that any potential investor will scrutinize for signs of your resourcefulness and judgment—and possible red flags.

What signals does your cap table send to future investors, and what key insights do they seek from it? The top answer is unanimous.

"We want to ensure that founders retain sufficient ownership and maintain a healthy option pool to attract employees," says Pejman Nozad, the founder of Pear.vc. Similarly, Roy Bahat, who leads Bloomberg Beta, emphasizes that his primary concern is ensuring the founder retains a significant stake in the company.

The founder’s (or founders’) stake is paramount for several reasons. At a basic level, investors want to ensure that their interests are aligned with those of the founding team. The more potential upside the founding team has, the more motivated they will be to build their startup. And investors also want to make sure there’s enough equity left over to bring in new investors in later rounds. What’s more, too much founder dilution could signal red flags. By regularly updating ownership percentages, shares and values, founders can prevent potential pitfalls.

Hunter Walk, a founding partner at Homebrew, says you want to avoid situations where a family member or angel gives you the cash you need to get going but does it on onerous terms. Similarly, you want to stay away from incubators or accelerators that overreach, demanding too much equity in exchange for office space or early advice. “These are not necessarily deal killers, but they sometimes can speak to the judgment of the CEO,” Walk says. It's critical that everyone is happy with the split.

Understanding the context of your cap table

Starting a company in San Francisco, New York or Austin can be easier than in some other parts of the country. “If it’s a founder from outside of Silicon Valley who didn’t have access to good advice, we will talk with them about what we think they need to clean up before we’re comfortable with investing,” Walk says. That could include offering to repurchase some of the equity they’ve given away or renegotiating terms, he adds.

After overall founders’ stakes, the next key question revolves around how ownership is divided among the founding team itself. Investors tend to prefer evenly distributed equity. Lopsided ownership—say an 80-20 split between two co-founders—is likely to raise questions.

While it’s not necessarily a deal breaker—sometimes one founder simply contributed far more than others—it’s critical that everyone is happy with the split. “I want to make sure that the co-founders with less equity are comfortable with that,” says Walk. “And I want to make sure their equity is commensurate with the role they’re going to play going forward.”

Nozad agrees. “We want to assume it has been discussed and they’re very, very comfortable with it.”

McKenzie, the serial entrepreneur, also recommends a balanced split among co-founders and warns against entrepreneurs using the cap table to get “repaid” for expenses incurred during the cash-strapped phase of the company. “If someone bought a bunch of servers or is owed money, do an IOU rather than dealing with it on the cap table,” McKenzie says. Repaying a founder with extra equity may give pause to future investors, as “it doesn’t suggest a huge amount of sophistication on your part,” he adds.

Building a balanced cap table

Pay attention to who else besides you and your co-founders is on your cap table. A cap table details the ownership structure of your company, listing all equity stakeholders and their respective shares. In contrast, a cap stack outlines the hierarchy of financial instruments, such as debt and equity, used to fund the company, indicating the order of repayment in the event of liquidation.

While a cap table details equity ownership, a cap stack provides insight into the overall financial structure of the company, showing how different financing instruments are prioritized. Focus on getting the right people rather than too many people. Ideally, you’ll have a lead investor, a strategic investor, a great angel, not a list of 30 random people.

Several investors also advise to watch out for what Walk calls “dead equity”—shareholders who don’t bring additional value beyond the cash they contribute. Keep them to a minimum. That includes shareholders who were involved with the company in some capacity early on but are no longer in the picture. It may be a third co-founder who has departed but still owns 20 percent of the company. It may be a relative who contributed to the company’s first funds during a family and friends round. “Too many shareholders who don’t add value beyond money can be a red flag to potential investors,” says Bahat.

Finally, consider the following – a small mistake in your cap table early on can get magnified over time. McKenzie says such mistakes can become a lead source of contention among founders and between founders and outside investors. “Conversations to fix those early mistakes are not very happy conversations,” McKenzie warns. And if you think mistakes are rare, listen to the experts. “Check the math,” says Bahat. “Almost every cap table we see has a math error.”

Conclusion

In summary, a well-structured cap table is more than just a spreadsheet; it’s a reflection of your company’s foundation and potential. By ensuring accuracy and addressing issues proactively, you can build credibility with investors, attract top talent and position your business for long-term success.

“Getting the cap table right is more than just a matter of keeping things organized,” says Peter Walker, Director of Data Insights at Carta. “It’s closely linked to fundraising, valuation, issuing equity, hiring the right team, and so many other points in the founder journey. Understanding cap tables inside-out is hugely important to maximize your chances of success.”

With insights from a financial and ecosystem partner, like SVB, you’re better equipped to navigate this critical aspect of startup management and to set the stage for sustainable growth.