Money for startups : Cap table

In the previous article, Nine Steps Every Founder Must Take Before Seeking an Investor, we walked through everything that needs to happen before you ever sit across from a VC. Once you’ve built the product and identified your customer, the work becomes structural: hire a lawyer, agree on the founder equity split and vesting, incorporate, issue founder shares with vesting, file the 83(b) (if you’re in the U.S.), sign IP assignment agreements, and create an option pool.

Now we’re going to zoom in on one foundational piece of that structure: the cap table.

We’ll look at it in three moments. First, the simple draft founders agree on before incorporation. Then the formal, legal version created at incorporation. And finally, how it evolves once investors enter the picture. It starts lean — just the founders — and gradually expands as the company grows.

What is a cap table?

A cap table — short for capitalization table — is a spreadsheet that answers one question: who owns what in this company, and how much?

At its simplest, it is a list of names, share counts, and ownership percentages. Every time something changes — a new investor comes in, an employee gets options, a founder's shares vest — the cap table updates to reflect the new reality. It is the single source of truth for ownership.

The Three Stages of a Cap Table

Before Incorporation: The Draft (Step 4)

The first version of a cap table is informal. It exists when founders align on equity and vesting but before the company is legally formed. Nothing has been issued yet. No shares exist. It is planning and agreement.

At this stage - which is usually pre-seed-, the draft cap table forces clarity. Founders decide the equity split — perhaps 50/30/20 — agree on vesting terms , typically four years with a one‑year cliff, and determine how many total shares the company will authorize, often 10 or 20 million. This is alignment, not paperwork. But it matters deeply because it prevents confusion later.

At Incorporation: The Legal Version

Once the company is incorporated, the cap table becomes real. Shares are authorized. Founder restricted stock purchase agreements are signed. The board (listed in the corporation file, only founders for now) approves the issuance of shares. Ownership is no longer theoretical — it is legally binding.

From this moment forward, the cap table is not just a spreadsheet. It is a legal record.

After Incorporation: A Living Document

After incorporation, the cap table evolves. It changes when new shares are issued, when an option pool is created or expanded, when SAFEs are issued and later convert into equity, and when investors purchase preferred stock in a priced round. It grows as the company grows.

If you zoom out, the timeline is simple: draft for alignment before incorporation, formalize at incorporation when shares are issued, and maintain continuously after that as the company issues new equity.

What Goes Into a Founder-Only Cap Table (before incorporation and at corporation) ?

On day one, it is usually just the founders. No investors yet. No employees with options granted. At this stage, the cap table records each shareholder’s name, the class of stock (typically common stock), the number of shares owned, the ownership percentage, and the vesting terms attached to those shares.

One principle is critical: you always work in shares, not percentages. Percentages change the moment new shares are issued. The number of shares a person owns does not change unless the company deliberately issues or repurchases shares. Serious ownership discussions happen in shares.

To make this concrete, imagine four co‑founders: Eman (CEO), Samar (COO), Ahmed (CMO), and Rakan (CTO). They incorporate and issue 3,600,000 shares in total.

Shareholder	Role	Shares	Ownership
Eman	CEO	1,200,000	33.3%
Samar	COO	800,000	22.2%
Ahmed	CMO	800,000	22.2%
Rakan	CTO	800,000	22.2%
Total		3,600,000	100%

This is the entire company on day one. Four founders. 3.6 million shares. Fully documented ownership.

Why the Total Share Count Matters

You might wonder why we use 3.6 million shares instead of simply saying 33 percent and 22 percent.

The reason is that percentages are unstable. The moment you create an option pool or bring in an investor, everyone’s percentage decreases. But the number of shares each founder owns remains the same unless new shares are issued or old ones are repurchased. Shares are the fixed units. Percentages are just math derived from them.

Starting with millions of shares also gives you flexibility. It avoids awkward fractions later and makes it easier to allocate equity to future employees and investors without restructuring the entire table.

How the Cap Table Evolves Over Time

As the company grows, the cap table adds layers. The first major addition is usually an option pool — shares reserved for future hires. Later, you may issue SAFEs, which appear on the cap table as instruments that will convert into shares. Eventually, during a priced round, investors receive preferred stock, and the ownership percentages shift again.

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