A capitalization table (cap table) is a ledger of who owns what percentage of a company — founders, employees with equity grants, and every investor, across every funding round. It tracks share counts, share classes (common vs. preferred), and ownership percentages, and updates every time new shares are issued.
Why it matters
Every time a company raises money, it issues new shares to investors — which dilutes (reduces the ownership percentage of) everyone who already held shares, even though the number of shares they personally hold doesn't change. A founder who owns 40% before a round that issues new shares equal to 20% of the company will own roughly 32% afterward (40% × (1 − 20%)), not 20% less in absolute terms.
Common cap table terms
- Fully diluted shares: total shares as if every option, warrant, and convertible note were exercised or converted — used for calculating true ownership percentages.
- Option pool: shares set aside for future employee equity grants, usually created or topped up right before a funding round (which dilutes existing holders to fund it).
- Liquidation preference: a term that determines who gets paid first, and how much, if the company is sold — typically protects preferred (investor) shareholders.