Equity

What is a cap table?

A cap table is both a record and an analysis tool:

• The list of securities a company has issued, who owns them, how many, and what type
• An analysis tool to understand the impact of financing rounds

Pre-financing cap tables show current share classes and ownership. Pro-forma (post-financing) cap tables show the state after a round.

What is a cap table?

Share counts: authorized, issued, fully-diluted

Four distinct numbers, easy to confuse, used for different things.

• Authorized. The maximum shares the company can legally issue, set in the Certificate of Incorporation. Tracked by share class. Raising the authorized count requires board and stockholder consent plus a charter amendment.
• Issued and outstanding. Shares actually held by shareholders today. Counts common and preferred (and any other class) that has actually been issued. Does not count options, warrants, SAFEs, or convertible notes. This is the baseline for voting on most matters.
• Fully diluted. Issued and outstanding plus everything that could become a share without further pricing: authorized-but-ungranted options, granted-but-unexercised options, and warrants. Preferred is counted at its current conversion ratio to common, which is normally 1:1.
• Fully diluted, as-converted. Fully diluted with all preferred converted at its actual ratio rather than assumed 1:1. If anti-dilution has fired on Series A, that series might convert at 1.08:1, so 1mm preferred shares count as 1.08mm common-equivalents. Sometimes also includes as-if-converted SAFEs and notes at an assumed conversion price; that piece is a modeling assumption rather than a real number, since the actual share count depends on the next round.

What each number is used for:

• Authorized governs legal capacity. Increase this before any issuance that would exceed it.
• Issued and outstanding is the baseline for voting on most matters and for some preferred protective provisions tied to share counts at issuance.
• Fully diluted is the denominator in the price-per-share calculation for a round, the basis for sizing option pools, and the ownership percentage typically quoted in fundraising conversations.
• Fully diluted, as-converted is what the exit waterfall uses for the keep-vs-convert test and for proceeds-per-share, and it's the right ownership figure to quote once anti-dilution has fired or when subseries within a round have different conversion ratios.

SAFEs and unconverted convertible notes sit separately on the cap table. They aren't shares yet, so they don't count in any of the four numbers above until they convert. See SAFEs and Convertible Notes.

Issuing Equity

A "priced round" issues shares at a valuation.

Premoney valuation / (Fully-Diluted Shares prior to the round + dilutive shares included in the calculation)

What's in the share count varies — see SAFEs and Convertible Notes.

Convertible Note

Debt that converts to equity at a milestone (a date or a financing event). Treated as unsecured debt.

Can include: discount rate (discount to equity price), cap (max valuation at conversion), interest rate (usually accrued, converted or paid at conversion), and maturity date.

Legal docs typically express a 20% discount as "80% of the equity price."

Example: Convertible Note by Fenwick.

SAFEs

SAFEs (Simple Agreement for Future Equity) are warrant-like rights to purchase shares. Not debt. Introduced in 2013 to simplify early-stage financings.

SAFEs can have cap or discount, no interest rate, no maturity.

The postmoney SAFE (2018, YC documents) replaced the premoney SAFE, defining conversion more precisely.

Effectively, the postmoney SAFE adds anti-dilution protection for investors. Debated: Why Startups shouldn't use YC's Post-Money SAFE; A Fix for Post-Money SAFEs; A CORRECTED "SAFE FOR FOUNDERS".

Postmoney SAFEs also removed prorata by default (reinstatable via side letter).

Raising a round

Taking in capital using one of the structures above, issuing securities at a determined price (or the right to purchase at a later price).

Rounds can aggregate multiple investments at different valuations, especially with convertibles.

SAFEs, convertible debt, and warrants list separately on a cap table — holders don't own shares yet. Share count at conversion depends on the next round.

Converting investments

Convertibles convert into equity when a priced round raises. Usually at a lower price than new equity, the discount being the reward for earlier risk.

Pro-rata rights and Major Investors

Most preferred share agreements grant existing investors the right to participate in future rounds, sized to maintain their ownership percentage. The agreements typically reserve those rights for "Major Investors" rather than every preferred holder, which means the cap table needs a way to track who qualifies.

Two common ways to define Major Investor status:

• By share count. A minimum number of preferred shares (or as-converted common). E.g. holders of 500,000 or more registrable securities.
• By dollar amount. A minimum invested. E.g. holders who paid 300,000 or more for their preferred. Better when subseries within a round were issued at different original issue prices, since SAFE-converted shares often have a lower OIP than new-money shares in the same round.

Watch for rounding. An investor who wired 299,999.40 because the share price did not divide their target evenly is not a Major Investor under a strict 300,000 threshold. The legal docs rarely soften this; either round dollars up at allocation or use the share-count threshold.

For a future round of size R, each Major Investor's pro-rata allocation is:

Allocation = R * (their fully-diluted shares / total fully-diluted shares)

Fully-diluted in the denominator typically means issued and outstanding plus authorized options plus as-converted preferred. Definitions vary; the NVCA Investors' Rights Agreement is the standard reference.

Glossary

Term	Definition
Investment Amount	New capital invested in a round
Premoney Valuation	Company value before a round
Postmoney Valuation	Premoney + amount invested
Company Capitalization	Definition of shares used in the price-per-share calculation
Price per Share	Premoney / shares in company capitalization
Common Shares	Common Stock
Preferred Shares	Preferred Stock
Authorized Shares	Shares the company can legally issue, per the Certificate of Incorporation. By share class
Issued and Outstanding	Shares actually held by shareholders. Excludes options, warrants, SAFEs, and notes. Less than authorized
Fully Diluted	Issued and outstanding plus authorized-but-ungranted options, granted-but-unexercised options, and warrants. Preferred at its current conversion ratio (normally 1:1)
Fully Diluted, as-converted	Fully diluted with preferred converted at its actual ratio (relevant when anti-dilution has fired). Used for waterfall and proceeds-per-share calculations
Fractional Shares	Rounded to avoid fractional issuance
Secondaries	Existing shares transferred between investors. No new money to the company

Option pool math: Cap Table and Exit Waterfall Tool

Where this lives in your legal docs

The price-per-share calculation, share class definitions, and conversion math live in the Certificate of Incorporation. The Stock Purchase Agreement governs the round itself. Pro-rata rights and Major Investor thresholds live in the Investors' Rights Agreement. The NVCA model documents are the canonical templates; most law firms start there and modify.

Adding more rounds