The Ultimate Cap Table Guide:
A Comprehensive Manual for
Founders and VC Analysts
December 3, 2024
A Complete Guide to Understanding
Cap Table Management, Calculations,
and Best Practices
For Educational Purposes Only
Consult Legal and Financial Professionals for Specific Advice
1 The Ultimate Cap Table Guide
Contents
1 Fundamentals of Cap Table Management 4
1.1 Understanding Cap Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.1.1 Basic Cap Table Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Initial Cap Table Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2.1 Founder Equity Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2.2 Vesting Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 Understanding Share Classes 5
2.1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2.1 Key Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2.2 Liquidation Preference Calculations . . . . . . . . . . . . . . . . . . . . . 5
3 Advanced Funding Rounds and Dilution 6
3.1 Series A Funding Round Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1.1 Pre-Money Valuation Mechanics . . . . . . . . . . . . . . . . . . . . . . . 6
3.1.2 Detailed Cap Table After Series A . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Option Pool Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2.1 Pre-Money vs. Post-Money Option Pools . . . . . . . . . . . . . . . . . . 6
4 Convertible Securities 6
4.1 Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1.1 Basic Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1.2 Conversion Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 SAFE (Simple Agreement for Future Equity) . . . . . . . . . . . . . . . . . . . . 7
4.2.1 SAFE vs. Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5 Anti-Dilution Protection 7
5.1 Types of Anti-Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1.1 Broad-Based Weighted Average . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1.2 Narrow-Based Weighted Average . . . . . . . . . . . . . . . . . . . . . . . 7
6 Exit Scenarios 8
6.1 IPO Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1.1 Conversion of Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 M&A Waterfall Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2.1 Distribution Waterfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7 Case Studies 8
7.1 Case Study 1: Seed to Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1.1 Initial Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1.2 Series A Round . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8 Complex Financing Structures 9
8.1 Down Round Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1.1 Full Ratchet Anti-dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Pay-to-Play Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2 The Ultimate Cap Table Guide
9 Multiple Liquidation Preferences 10
9.1 Stacked Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Pari Passu Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10 Advanced Exit Scenarios 10
10.1 Drag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.1.1 Threshold Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.2 Tag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11 Advanced Case Studies 11
11.1 Case Study 2: Complex Down Round . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.1.1 Initial Cap Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.1.2 Down Round Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.2 Case Study 3: Exit Waterfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.2.1 Complex Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12 Special Situations 12
12.1 Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.2 Secondary Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13 Regulatory Compliance and Legal Considerations 12
13.1 Securities Laws Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13.2 Stock Option Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Best Practices in Cap Table Management 13
14.1 Documentation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 Version Control and Audit Trail . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15 Advanced Modeling Techniques 14
15.1 Exit Scenario Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 Option Pool Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16 Common Mistakes and Solutions 14
16.1 Documentation Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.2 Calculation Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17 Templates and Tools 15
17.1 Cap Table Templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.2 Modeling Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
18 Advanced Case Studies 15
18.1 Case Study 4: IPO Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19 International Considerations 16
19.1 Cross-Border Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
19.2 International Employee Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
20 Industry-Specific Scenarios 16
20.1 Biotech Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
20.2 Enterprise Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21 Advanced Compliance Topics 17
21.1 Rule 701 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21.2 ASC 718 (Stock Compensation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3 The Ultimate Cap Table Guide
22 Complete Reference Guide 17
22.1 Standard Deal Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22.2 Negotiation Frameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23 Glossary of Terms 18
24 Further Resources 19
24.1 Professional Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
24.2 Educational Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4 The Ultimate Cap Table Guide
1 Fundamentals of Cap Table Management
1.1 Understanding Cap Tables
A capitalization table is more than just a spreadsheet—it’s a comprehensive document that
tracks all forms of ownership in a company. This includes:
• Common stock
• Preferred stock
• Stock options
• Warrants
• Convertible securities
• SAFEs and convertible notes
1.1.1 Basic Cap Table Structure
A basic cap table should include the following columns:
• Shareholder Name
• Security Type
• Number of Shares
• Share Price
• Total Investment
• Ownership Percentage
• Fully Diluted Ownership
• Voting Rights
• Special Rights/Preferences
1.2 Initial Cap Table Setup
1.2.1 Founder Equity Distribution
Calculation: Example of Initial Founder Split:
Total Authorized Shares: 10,000,000
Founder A (CEO): 4,500,000 shares (45%)
Founder B (CTO): 3,500,000 shares (35%)
Option Pool: 2,000,000 shares (20%)
Initial Share Price: $0.0001 (Par Value)
Total Initial Capital: $1,000
5 The Ultimate Cap Table Guide
1.2.2 Vesting Schedules
Standard vesting schedules typically follow a 4-year pattern with a 1-year cliff:
Four-Year Vesting Schedule:
Total Shares: 1,000,000
Year 1 (Cliff): 250,000 shares vest
Years 2-4: 20,833 shares vest monthly
Calculation:
Monthly Vesting = (1,000,000 - 250,000) ÷ 36 months = 20,833 shares
2 Understanding Share Classes
2.1 Common Stock
Common stock represents basic ownership in the company and typically has:
• Standard voting rights (1 share = 1 vote)
• Last priority in liquidation
• No special preferences
2.2 Preferred Stock
2.2.1 Key Features
Preferred stock typically includes:
• Liquidation preferences
• Anti-dilution protection
• Voting rights
• Board seats
• Pro-rata rights
• Information rights
2.2.2 Liquidation Preference Calculations
Calculation: 1x Liquidation Preference Example:
Investment Amount: $1,000,000
Exit Value: $5,000,000
Non-Participating Preferred:
Preference = max($1,000,000, $5,000,000 × ownership%)
Participating Preferred:
6 The Ultimate Cap Table Guide
Return = $1,000,000 + ($4,000,000 × ownership%)
3 Advanced Funding Rounds and Dilution
3.1 Series A Funding Round Analysis
3.1.1 Pre-Money Valuation Mechanics
Calculation: Series A Example:
Pre-money Valuation: $10,000,000
Existing Shares: 10,000,000
Round Size: $5,000,000
Price Per Share = $10,000,000 ÷ 10,000,000 = $1.00
New Shares Issued = $5,000,000 ÷ $1.00 = 5,000,000
Post-Money Valuation = $15,000,000
3.1.2 Detailed Cap Table After Series A
Stakeholder Shares Investment Price/Share Ownership% Value ($M)
Founder A 4,500,000 $450 $0.0001 30.00% 4.50
Founder B 3,500,000 $350 $0.0001 23.33% 3.50
Option Pool 2,000,000 – – 13.33% 2.00
Series A 5,000,000 $5,000,000 $1.00 33.33% 5.00
Total 15,000,000 $5,000,800 – 100% 15.00
Table 1: Post Series A Cap Table
3.2 Option Pool Expansion
3.2.1 Pre-Money vs. Post-Money Option Pools
Calculation: Pre-Money Option Pool Expansion:
Target Pool Size: 15%
Current Pool: 5%
Pre-Money Shares: 10,000,000
New Pool Shares = (15% × 10,000,000) ÷ (1 - 15%) = 1,764,706
Dilution Impact = 10% to existing shareholders
4 Convertible Securities
4.1 Convertible Notes
4.1.1 Basic Terms
• Principal Amount
7 The Ultimate Cap Table Guide
• Interest Rate
• Maturity Date
• Conversion Discount
• Valuation Cap
4.1.2 Conversion Calculations
Calculation: Convertible Note Example:
Principal: $500,000
Interest: 5% for 18 months = $37,500
Valuation Cap: $8,000,000
Series A Price: $2.00/share
Cap Price = $8,000,000 ÷ 4,000,000 = $2.00/share
Shares = ($537,500) ÷ $2.00 = 268,750 shares
4.2 SAFE (Simple Agreement for Future Equity)
4.2.1 SAFE vs. Convertible Notes
Key Differences:
• No maturity date
• No interest accrual
• Standardized terms
• Immediate equity conversion
5 Anti-Dilution Protection
5.1 Types of Anti-Dilution
5.1.1 Broad-Based Weighted Average
Calculation: Formula:
NCP = OCP × A+B A+C
Where:
NCP = New Conversion Price
OCP = Old Conversion Price
A = Shares outstanding pre-money
B = Total consideration ÷ OCP
C = Shares actually issued
5.1.2 Narrow-Based Weighted Average
8 The Ultimate Cap Table Guide
Similar to broad-based but excludes options and warrants from calculation
6 Exit Scenarios
6.1 IPO Preparation
6.1.1 Conversion of Preferred Stock
Calculation: Example:
Series A: 1:1 conversion
Series B: 1.2:1 conversion
Series C: 1.5:1 conversion
Total New Common =
SeriesA × 1 + SeriesB × 1.2 + SeriesC × 1.5
6.2 M&A Waterfall Analysis
6.2.1 Distribution Waterfall
Exit Value: $100M
Preferences:
Series C: $30M (1.5x)
Series B: $20M (1x)
Series A: $10M (1x)
Distribution Order:
1. Senior Preferences
2. Junior Preferences
3. Participation (if any)
4. Common Stock
7 Case Studies
7.1 Case Study 1: Seed to Series B
7.1.1 Initial Setup
• Two founders: 80/20 split
• 10% option pool
• $500k SAFE round at $5M cap
7.1.2 Series A Round
Calculation: Pre-money: $10M
Round Size: $5M
9 The Ultimate Cap Table Guide
Option Pool: 15%
Step 1: SAFE Conversion
SAFE Price = min(Cap Price, Round Price)
SAFE Shares = 500,000 ÷ $1.00 = 500,000
Step 2: New Option Pool
New Shares = 1,764,706
Step 3: Series A Investment
New Shares = $5M ÷ $1.00 = 5,000,000
8 Complex Financing Structures
8.1 Down Round Mechanics
8.1.1 Full Ratchet Anti-dilution
Calculation: Example:
Original Investment:
- Price per share: $2.00
- Shares: 1,000,000
- Investment: $2,000,000
Down Round:
- New price: $1.00
Adjustment:
New Shares = Original Investment ÷ New Price
= $2,000,000 ÷ $1.00 = 2,000,000 shares
Additional Shares Issued = 1,000,000
8.2 Pay-to-Play Provisions
Standard Pay-to-Play Terms:
1. Investor must participate pro-rata
2. Failure consequences:
- Convert to common stock
- Lose anti-dilution protection
- Lose certain voting rights
Example Calculation:
Original Investment: $1,000,000
New Round Size: $5,000,000
Pro-rata Right: 20%
Required Investment: $1,000,000
10 The Ultimate Cap Table Guide
9 Multiple Liquidation Preferences
9.1 Stacked Preferences
Calculation: Example Exit: $50M
Preferences:
Series C: $15M (2x)
Series B: $10M (1.5x)
Series A: $5M (1x)
Distribution:
1. Series C: $30M (2 × $15M)
2. Series B: $15M (1.5 × $10M)
3. Series A: $5M (1 × $5M)
4. Remaining: $0
9.2 Pari Passu Preferences
Equal Priority Exit: $50M
Total Preferences: $30M
Distribution Ratio:
Series C: 50% = $25M
Series B: 33% = $16.5M
Series A: 17% = $8.5M
10 Advanced Exit Scenarios
10.1 Drag-Along Rights
10.1.1 Threshold Requirements
• Majority vote requirement
• Board approval
• Minimum price threshold
• Fair terms requirement
10.2 Tag-Along Rights
Calculation: Example:
Founder selling: 1,000,000 shares
Total shares: 10,000,000
Investor ownership: 2,000,000
11 The Ultimate Cap Table Guide
Tag-Along Rights = (1,000,000 × 2,000,000) ÷ 10,000,000
= 200,000 shares can be included
11 Advanced Case Studies
11.1 Case Study 2: Complex Down Round
11.1.1 Initial Cap Table
Class Shares Price Investment Ownership
Founders 5,000,000 $0.0001 $500 50%
Series A 3,000,000 $1.00 $3M 30%
Options 2,000,000 $0.50 – 20%
11.1.2 Down Round Terms
Calculation: Pre-money: $5M (vs $15M post-last round)
Round size: $3M
New option pool: 15%
Anti-dilution: Broad-based weighted average
Step 1: Anti-dilution Adjustment
Original price: $1.00
New price: $0.50
Additional shares: 1,500,000
Step 2: Option Pool Adjustment
New total: 2,500,000 options
Step 3: New Investment
Shares: 6,000,000 at $0.50
11.2 Case Study 3: Exit Waterfall
11.2.1 Complex Preferences
Exit Value: $200M
Preferences:
Series C: $30M (2x participating)
Series B: $20M (1.5x non-participating)
Series A: $10M (1x participating)
Ownership:
Series C: 30%
Series B: 25%
Series A: 20%
12 The Ultimate Cap Table Guide
Common: 25%
Distribution Steps:
1. Senior Preferences: $60M to Series C
2. Junior Preferences:
- Series B: $30M
- Series A: $10M
3. Participation Pro-rata on Remainder:
$100M distributed based on ownership
12 Special Situations
12.1 Recapitalization
Calculation: Example Recap:
Original Structure:
- Common: 5M shares
- Preferred: 5M shares
- Options: 2M shares
Reverse Split Ratio: 10:1
New Structure:
- Common: 500K shares
- Preferred: 500K shares
- Options: 200K shares
New Option Price = Old Price × 10
12.2 Secondary Sales
Secondary Transaction:
Shares Sold: 500,000
Price per share: $5.00
Total Value: $2.5M
Right of First Refusal (ROFR):
1. Company: 7 days
2. Investors: 14 days
3. Open market: Remaining
13 Regulatory Compliance and Legal Considerations
13.1 Securities Laws Compliance
13 The Ultimate Cap Table Guide
Key Regulatory Requirements:
• Rule 701 compliance for equity compensation
• Form D filings for private placements
• State blue sky laws
• 409A valuations
• ISO vs NSO requirements
Example 409A Timeline: 1. Independent valuation obtained: $5.00/share 2. Board
approval: January 1, 2024 3. Valid for 12 months unless material event 4. Options must be
priced at or above FMV
13.2 Stock Option Administration
Calculation: ISO Annual Limit Calculation:
Lesser of:
1. $100,000 ÷ Exercise Price
2. First exercisable year
Example:
Option Grant: 100,000 shares
Exercise Price: $2.00
ISO Limit: 50,000 shares per year
Remainder: Convert to NSO
14 Best Practices in Cap Table Management
14.1 Documentation Requirements
Essential Documents Checklist:
1. Certificate of Incorporation
2. Bylaws
3. Board resolutions
4. Stock Purchase Agreements
5. Option agreements
6. Rights of First Refusal notices
7. Investor Rights Agreements
8. Voting Agreements
14 The Ultimate Cap Table Guide
14.2 Version Control and Audit Trail
Calculation: Sample Audit Log Entry:
Date: 2024-01-15
Action: Option Grant
Details:
- Recipient: John Smith
- Shares: 50,000
- Price: $2.00
- Board Approval: Res. 2024-01
- Certificate: OS-2024-001
15 Advanced Modeling Techniques
15.1 Exit Scenario Modeling
Waterfall Analysis Template:
Exit Value $100M $200M $500M
Series C (2x) $40M $40M $40M
Series B (1.5x) $30M $30M $30M
Series A (1x) $20M $20M $20M
Remainder $10M $110M $410M
15.2 Option Pool Planning
Calculation: Strategic Pool Planning:
Total Hires Needed: 25
Average Grant: 50,000 shares
Buffer: 20%
Calculation:
Base Need = 25 × 50,000 = 1,250,000
With Buffer = 1,250,000 × 1.2 = 1,500,000
As % of Post-Money:
1,500,000 ÷ 15,000,000 = 10%
16 Common Mistakes and Solutions
16.1 Documentation Errors
Common Pitfalls: 1. Missing board approvals 2. Incorrect share counts 3. Inconsistent
pricing 4. Unsigned agreements 5. Lost certificates
15 The Ultimate Cap Table Guide
Solutions: 1. Regular audits 2. Digital document management 3. Professional cap table
software 4. Legal review process 5. Backup procedures
16.2 Calculation Errors
Calculation: Example Error Check:
Total Shares Method:
1. Sum all share grants 2. Compare to stock ledger 3. Verify against board minutes 4.
Cross-reference with certificates
Ownership Verification:
Total all percentages = 100%
Fully diluted check = all securities
17 Templates and Tools
17.1 Cap Table Templates
Basic Template Structure:
1. Summary Tab
- Total shares by class
- Ownership percentages
- Fully diluted analysis
2. Detail Tabs
- Common stock ledger
- Preferred stock ledger
- Option ledger
- Warrant ledger
3. Transaction History
- Date
- Type
- Details
- Documentation links
17.2 Modeling Tools
Calculation: Valuation Model Components: 1. Share price calculations 2. Dilution
analysis 3. Option pool modeling 4. Preference calculations 5. Exit waterfall 6. Returns
analysis
18 Advanced Case Studies
18.1 Case Study 4: IPO Preparation
16 The Ultimate Cap Table Guide
Pre-IPO Checklist: 1. Clean up cap table 2. Convert all preferred 3. Resolve any disputes
4. Update option grants 5. Complete 409A 6. File Form D amendments
Timeline: T-12 months: Begin cleanup T-9 months: Resolve issues T-6 months: Final
audit T-3 months: SEC documentation
19 International Considerations
19.1 Cross-Border Investments
Key Considerations:
• Double taxation treaties
• Foreign ownership restrictions
• Currency conversion
• Local securities laws
• Withholding requirements
Example Structure: Foreign Parent Co (Delaware) Operating Co (Local) Share rights
flow-through
19.2 International Employee Equity
Calculation: RSU vs. Option Analysis:
Country A Tax Rate: 35%
Country B Tax Rate: 25%
Grant Value: $100,000
RSU Tax Impact:
Country A: $35,000
Country B: $25,000
Option Structure:
Strike Price: $1.00
FMV at Grant: $1.00
Tax Deferral Until Exercise
20 Industry-Specific Scenarios
20.1 Biotech Companies
Milestone-Based Financing:
• Phase I Completion: $10M at $2.00
17 The Ultimate Cap Table Guide
• Phase II Data: $20M at $4.00
• FDA Approval: $50M at $8.00
Trigger Events: 1. Clinical milestones 2. Regulatory approvals 3. Partnership agree-
ments
20.2 Enterprise Software
Calculation: SaaS Metrics Integration:
Valuation Metrics:
- ARR: $10M
- Growth Rate: 100%
- Multiple: 15x
Valuation: $150M
Option Strike: $15.00
Pool Sizing: 15% of post-money
21 Advanced Compliance Topics
21.1 Rule 701 Compliance
Threshold Analysis:
• Aggregate sales < $1M
• 15% of total assets
• 15% of outstanding securities
Disclosure Requirements: 1. Risk factors 2. Financial statements 3. Plan documents
21.2 ASC 718 (Stock Compensation)
Calculation: Fair Value Calculation:
Black-Scholes Inputs:
- Stock Price: $10.00
- Strike Price: $10.00
- Volatility: 45%
- Term: 6 years
- Risk-free rate: 2%
Fair Value per Share: $5.00
Total Expense: $500,000
22 Complete Reference Guide
18 The Ultimate Cap Table Guide
22.1 Standard Deal Terms
Term Seed Series A Series B Series C+
Board Seats 0-1 1 1 1+
Key Provisions Matrix: Preference 1x 1x 1-1.5x 1.5-2x
Anti-dilution None Broad Broad Broad/Full
Pro-rata Yes Yes Yes Limited
22.2 Negotiation Frameworks
Calculation: Option Pool Sizing Framework:
C-Level: 2-3%
VP-Level: 1-1.5%
Directors: 0.5-1%
Key Hires: 0.25-0.5%
Total Pool Calculation:
Sum of Grants + 20% buffer
23 Glossary of Terms
Anti-dilution Protection Provisions protecting investors from equity dilution in down rounds.
Broad-Based Weighted Average Anti-dilution formula including all convertible securities.
Cap Table Comprehensive record of company ownership and securities.
Down Round Financing round at lower valuation than previous round.
Exit Waterfall Distribution priority of proceeds in liquidation event.
Fully Diluted Shares All issued shares plus reserved shares for convertible securities.
Liquidation Preference Priority and amount of proceeds received in liquidation.
Option Pool Shares reserved for future employee equity compensation.
Par Value Nominal value assigned to shares, typically $0.0001.
Pay-to-Play Requirement for investors to participate in future rounds.
Pre-Money Valuation Company value before new investment.
Pro-rata Rights Right to maintain percentage ownership in future rounds.
ROFR Right of First Refusal on share transfers.
SAFE Simple Agreement for Future Equity.
Tag-Along Rights Right to join in sale of shares by other shareholders.
19 The Ultimate Cap Table Guide
24 Further Resources
24.1 Professional Service Providers
• Cap Table Management Software
– Carta
– Pulley
– LTSE Equity
– Shareworks
• Legal Services
– Startup-focused law firms
– Online legal services
– Document automation tools
• Financial Services
– 409A valuation providers
– Audit firms
– Tax advisors
24.2 Educational Resources
Recommended Reading:
• Venture Deals (Brad Feld)
• The Entrepreneur’s Guide to Business Law
• Angel Investing (David S. Rose)
• Term Sheets & Valuations
Online Resources:
• Y Combinator Startup Library
• NVCA Model Legal Documents
• Series Seed Documents
• 500 Startups Blog
