The Cap Table: Your Equity Ledger

The capitalization table (cap table) is a spreadsheet — or more likely a tool like Carta or Pulley — that tracks who owns what percentage of your company. Every time you give out equity, the cap table changes.

Starting cap table for a solo founder: 100% founder equity.

After adding a co-founder: two founders, split decided by negotiation (commonly 50/50, but depends on contribution).

After incorporating and issuing founder shares: the equity is formalized as actual shares (typically 10 million shares at $0.0001/share, a common starting point).

After a seed round: investors get equity in exchange for capital. Your percentage goes down (you're "diluted"), but the total value of your remaining equity may go up if the round was at a higher valuation.

Understanding the cap table is non-negotiable. You need to know who owns what before every negotiation.

Vesting: Why It Matters

Founder vesting is the mechanism that prevents a co-founder who leaves early from walking away with a large percentage of your company.

Standard founder vesting: 4-year schedule with a 1-year cliff. This means:

• If the co-founder leaves in the first year (before the cliff), they vest nothing
• After the cliff, they've vested 25% of their shares
• The remaining 75% vests monthly over the next 3 years

This protects the company from a co-founder who exits early. Without vesting, a departing co-founder takes their full equity stake and the remaining founders are building a company for someone who isn't there.

Many early founders skip vesting because it feels awkward with a trusted partner. Don't. It's standard practice and good founders know this.

Equity Pools: The Option Pool

When you hire employees, you compensate them with stock options, not direct equity. Options live in a pool set aside for this purpose — typically 10–20% of the company pre-Series A.

Options are not the same as shares. An employee with options has the right to buy shares at a predetermined price (the strike price) after a vesting period. The value of options depends on whether the company's value increases beyond that strike price.

When you create a new option pool for a fundraising round, your existing shares get diluted. VCs often require a 10–15% option pool as part of their investment terms — meaning the dilution of the option pool creation comes out of the founders' equity, not the investors'.

How Fundraising Dilutes You

When you raise money, you sell equity. Let's say you raise $500,000 at a $2M pre-money valuation. Your post-money valuation is $2.5M. The investor gets $500K/$2.5M = 20% of the company. You (and any co-founders) now own 80% of a more valuable company.

Whether dilution is good or bad depends entirely on what you're giving up versus what you get. 80% of a $2.5M company ($2M) is better than 100% of a $1M company.

The two most common early-stage funding instruments:

SAFE (Simple Agreement for Future Equity): You take money now, investors get equity at your next priced round. Common for pre-seed. Has a valuation cap (the maximum valuation at which they convert) and sometimes a discount rate.

Priced round: Actual shares sold at a defined valuation. More paperwork, requires a 409A valuation, but cleaner for everyone's cap table.

The Numbers That Matter for Hiring

When offering options to early employees, benchmark against what's standard:

• Employee 1–5 (pre-revenue, high risk): 0.5–2%
• Engineer joining at seed stage: 0.1–0.5%
• VP-level hire (Series A): 0.25–1%
• C-suite (Series A+): 0.5–2%

These ranges vary widely by company stage, role criticality, and the rest of the compensation package. Options are worth nothing until there's a liquidity event (acquisition or IPO), which most startups never reach.

Don't over-dilute early. Giving away 5% of your company to an early contractor who works for 3 months feels generous in the moment and creates cap table complexity that confuses investors later.

The One Tool to Get Right Now

If you haven't yet, open a Carta account (free for startups with under $1M raised). Manage your cap table there from the beginning. Trying to track this in a Google spreadsheet leads to errors, disputes, and expensive fixes when you eventually need to show a clean cap table to investors.

Your cap table is a living document. Start it correctly, update it with every equity grant, and review it before any major negotiation. Founders who understand their equity position negotiate better — with investors, co-founders, and employees.