A cap table is the register of who owns what in a company. It looks like a spreadsheet and behaves like a contract: every financing round is negotiated over it, and every term on a term sheet is an instruction about how the next version is drawn. This guide builds one from founding through a SAFE and a priced seed round, with every number worked, and stops at each step to say where the arithmetic goes wrong.
What the table holds
Every claim on the company: the ordinary shares the founders and employees hold, the options granted and the options reserved in the pool, any warrants, each series of preferred stock, and any SAFE or convertible note that has not yet converted, shown as the shares it would become. Each row carries a share count and a percentage. The percentage that matters is the fully diluted one, which treats every option as exercised and every convertible as converted, because that is the basis a sale would pay out on.
Ownership is a fraction, and that single fact explains dilution. Nobody’s shares are ever taken away. A round adds new shares to the denominator, and every existing fraction gets smaller. The question after a round is never "how much did I give away" but "what is the smaller fraction now worth", and a founder at 60% of a company worth $15m is better off than one at 100% of a company worth $5m.
Step one: founding
Two founders form the company and issue themselves 8,000,000 ordinary shares: 5,000,000 to Founder A and 3,000,000 to Founder B, for a nominal price. The number is arbitrary; large round numbers are chosen so that later rounds can price a share in dollars rather than in fractions of a cent. The split is not arbitrary at all, and it is the first negotiation on the table.
Founder shares vest, usually over four years with a one-year cliff, so that a co-founder who leaves in month eight does not leave with 37.5% of the company. Investors will insist on this at the first priced round if the founders did not do it themselves.
| Holder | Shares | Fully diluted |
|---|---|---|
| Founder A | 5,000,000 | 62.5% |
| Founder B | 3,000,000 | 37.5% |
| Total | 8,000,000 | 100% |
Step two: a SAFE, which is a promise rather than a row
An angel invests $500,000 on a post-money SAFE with a $5,000,000 valuation cap. No shares are issued. The SAFE is a promise: at the next priced round the angel will receive shares at a price no higher than the one the cap implies. On a post-money cap the promise has a clean fraction attached to it: $500,000 divided by $5,000,000 is 10% of the company’s capitalisation immediately before the priced round, where that capitalisation counts every existing share and every converting instrument but not the new money and not the pool the new round creates.
Written as shares against the founding count, 10% of the pre-round capitalisation is 8,000,000 × 0.1 ÷ 0.9 = 888,889 shares. That is what the SAFE will convert into if its cap is what binds, which it will whenever the round prices the company above $5m post-money. If the round prices below the cap, the SAFE converts at the round price instead, less any discount it carries.
The post-money form matters when there is more than one. Each SAFE keeps its own fraction, so a second SAFE promising 12.5% takes its whole 12.5% from the founders and leaves the first at 10%. Under the older pre-money form the two would have diluted each other. Founders who sign several post-money SAFEs should add up the fractions before signing the next one; a stack that has promised a third of the company is the reason the seed lead will price the round the way they do.
| Holder | Shares | Fully diluted |
|---|---|---|
| Founder A | 5,000,000 | 56.3% |
| Founder B | 3,000,000 | 33.8% |
| SAFE (at cap) | 888,889 | 10.0% |
| Total | 8,888,889 | 100% |
Step three: the priced round, and its three inputs
A seed fund offers $3,000,000 at a $12,000,000 pre-money valuation, with an unallocated option pool of 10% of the post-money fully diluted count, to be created before the money goes in. Three inputs, and each does something different to the table.
The pre-money plus the new money is the post-money: $15,000,000. The investor’s stake is the cheque over the post-money: 20%. That is fixed before anything else is calculated, and it is why funds negotiate in post-money terms.
The price per share is the pre-money divided by the fully diluted count it is struck over. With the pool "in the pre", that count is the founders’ 8,000,000, the SAFE’s 888,889, and the pool top-up. The top-up is sized so that the unallocated pool is 10% of the post-money count, which works out at 1,269,841 shares. So the price is $12,000,000 ÷ 10,158,730 = $1.18125, and the investor receives $3,000,000 ÷ $1.18125 = 2,539,683 shares.
| Holder | Shares | Fully diluted | At founding |
|---|---|---|---|
| Founder A | 5,000,000 | 39.4% | 62.5% |
| Founder B | 3,000,000 | 23.6% | 37.5% |
| Option pool | 1,269,841 | 10.0% | |
| SAFE, converted | 888,889 | 7.0% | |
| Seed investor | 2,539,683 | 20.0% | |
| Total | 12,698,413 | 100% | 100% |
The option pool shuffle, in numbers
The headline said $12m pre-money. But 1,269,841 of the shares the pre-money was divided over did not exist before the round and belong to nobody yet: they are options for people the company has not hired. At $1.18125 a share they are worth $1,500,000. So what actually existed before the round, the founders and the SAFE, was priced at 8,888,889 × $1.18125 = $10,500,000. The effective pre-money is the headline less the pool, and the investor is not diluted by the pool at all.
Run it the other way. Put the pool in the post-money, so it is created after the price is set. The price becomes $12,000,000 ÷ 8,888,889 = $1.35, the investor receives 2,222,222 shares, the pool is then created at 1,234,568 shares to be 10% of the new total, and everyone, the investor included, is diluted by it. The investor ends at 18% rather than 20%, and the founders at 64.8% rather than 63.0%. Same headline, $1.5m of difference in what the founders were paid, and 2 points of difference in what the fund owns.
Term sheets say pre-money, almost always. What a founder can negotiate is the size: a pool built from a hiring plan for the next twelve to eighteen months is usually smaller than the 10 to 15% a lead asks for by habit, and every point saved is worth a point of the post-money to the existing holders.
How the SAFE actually converted
The SAFE converted at its cap price, not at the round price. Its cap price is the $5,000,000 cap divided by the capitalisation of 8,888,889 shares, which is $0.5625; $500,000 at that price is 888,889 shares. The same money at the round price of $1.18125 would have bought 423,280 shares. The 465,609-share difference, worth about $550,000 at the round price, is what the angel was paid for writing a cheque when the company had no price.
Had the SAFE carried a 20% discount and a cap high enough not to bind, it would have converted at 80% of the round price instead, and received fewer shares than the cap gave it here. An instrument with both terms converts at whichever gives the lower price, so the discount matters only when the round prices below the cap. And notice what the round’s pool did to the SAFE: its 10% before the round is 7% after it, diluted by the pool top-up and by the new money exactly as the founders were.
Round by round: what a founder’s stake typically does
The seed round is the first of several, and each later round repeats the same three moves: a new investor takes a fraction of the post-money, the pool is topped back up to a target, and every existing row is pushed down by the same factor. The path below is illustrative and the ranges are wide, but the shape is the one most venture-backed companies follow.
| After | New money takes | Pool topped up to | Founders hold, roughly |
|---|---|---|---|
| Founding | 100% | ||
| Pre-seed SAFEs | 7 to 15% at conversion | 85 to 93% (promised) | |
| Seed | 15 to 25% | 10% | 55 to 65% |
| Series A | 18 to 25% | 10 to 12% | 40 to 50% |
| Series B | 15 to 20% | 8 to 10% | 30 to 40% |
| Series C and beyond | 10 to 15% each | 5 to 8% | 20 to 30% |
Where the arithmetic goes wrong
The same three mistakes account for most wrong answers in a cap table exercise, in an interview or in a real negotiation.
- Striking the price over the wrong count. The pre-money is divided by everything it is struck over, including converting instruments and, if the term sheet says so, the pool top-up. Dividing by the founders’ shares alone overstates the price
- Reading a post-money cap as a pre-money one. A $5m post-money cap on a $500k SAFE is 10% before the round, full stop; treating it as pre-money understates the SAFE and overstates the founders
- Quoting basic percentages. Options and convertibles exist whether or not they have been exercised, and only the fully diluted number predicts what a sale pays out
- Forgetting that the pool dilutes the SAFEs too. A SAFE’s fraction is measured before the pool top-up and the new money, and it falls with both
The questions an interview asks about this
These recur in venture interviews at every stage, and every one of them is answerable from the worked example above.
- A founder raises $3m at a $12m pre with a 10% post-money pool in the pre. What do they actually get valued at? ($10.5m: the headline less the pool)
- What does a $500k SAFE at a $5m post-money cap own? (10% of the pre-round capitalisation, diluted by the round like everyone else)
- The investor wants 20%. What post-money is that on a $3m cheque? ($15m, whatever the pool does)
- Two SAFEs at post-money caps promise 10% and 12.5%. What do the founders hold before the round? (77.5%; each SAFE keeps its own fraction)
- Why does the lead want the pool in the pre? (So the next eighteen months of hiring dilutes the existing holders and not the new money)
Frequently asked questions
How do you calculate the price per share in a seed round?
Divide the pre-money valuation by the fully diluted share count the term sheet says it is struck over: the existing shares and options, the shares any SAFEs or notes convert into, and the option pool top-up if the pool is in the pre-money. In the worked example, $12,000,000 divided by 10,158,730 shares gives $1.18125. The investor then receives their cheque divided by that price in new shares.
What is the option pool shuffle?
The practice of creating the employee option pool inside the pre-money valuation, so the pool shares are added to the count the pre-money is divided over. The price per share falls, the founders and earlier investors are diluted by the pool, and the new investor is not. The effect is that the founders receive the headline valuation less the value of the pool: $12m less $1.5m in the example.
How much does a founder get diluted in each round?
Typically 20 to 30% per round in the early rounds, counting the new investor’s stake and the pool top-up together, and 10 to 15% per round later on. Two founders who hold 100% at founding commonly hold 55 to 65% after seed, 40 to 50% after a Series A and 20 to 30% by a Series C. The ranges are wide because valuations, round sizes and pool sizes all vary with the company and the market.
How does a post-money SAFE convert in a priced round?
Its ownership is fixed at the amount invested divided by the valuation cap, measured on the company’s capitalisation immediately before the round (all shares, options and converting instruments, excluding the new money and the round’s pool increase). It receives that fraction in shares of the round’s preferred stock, at the cap price, unless the round prices below the cap, in which case it converts at the round price less any discount. That stake is then diluted by the pool top-up and the new money like every other existing holder.
Now try it
Cap Table Builder
Take a company from founding through a SAFE and a priced seed round. Set the cap, the pre-money and the option pool, watch the price per share and every holder’s stake move, then check your own arithmetic against the table.
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