What is a cap table? Ownership and dilution explained
By Unlearnt
A capitalisation table, or cap table, is the record of who owns a company and how much. It lists each holder, founders, investors and an option pool for employees, with their shares and their percentage of the whole. It matters most when a company raises money, because new shares change everyone's slice.
What a cap table records
At its simplest, a cap table lists each shareholder, how many shares they hold, and what percentage that is of the total. A share count on its own means little; the percentage depends on the total number of shares, which is why the table tracks both.
It usually also reserves an option pool: shares set aside to hire and reward employees. Because those reserved shares count towards the total, the pool affects everyone else's percentage even before the options are granted.
A worked example: a round dilutes everyone
Imagine founders who own 100% of a company. To raise money, it issues new shares so that incoming investors end up owning 20%, and it also creates a 10% option pool. These figures are illustrative.
After the round the founders hold about 70%, the investors 20% and the pool 10%. Crucially, the founders did not hand over any of their own shares; new shares were issued to others, so the founders' percentage fell while their share count stayed the same. That fall is called dilution.
A new round: founders go from 100% to 70%.
Before the round
After the round
Dilution is not the same as losing value
A smaller percentage can still be worth more. If the round brings in cash and raises the company's value enough, 70% of the larger company can be worth more than 100% of the smaller one was. The figure that matters is percentage multiplied by value, not percentage alone.
Whether a round is a good deal therefore depends on the price. Pre-money value is the company's worth before the new cash; post-money is pre-money plus the investment. The investors' percentage is roughly their cheque divided by the post-money value.
Misconception: dilution always makes you worse off
Dilution lowers your percentage, but it is a means to an end. Raising capital, or setting aside an option pool to attract employees, can grow the whole company faster than keeping a larger share of a smaller one. Owners weigh the loss of percentage against the value the round is expected to create.
Dilution also does not reduce your number of shares. Your holding is unchanged; it is the larger total that shrinks your proportion. Reading a cap table well means separating a change in percentage from a change in the value of what you hold.
Check your understanding
Optional: apply the idea to a new scenario.
A startup's founders hold all 8,000,000 shares, which is 100% of the company. To raise a round, the company issues new shares so new investors end up with 25% and it also sets aside a 10% option pool. Roughly what percentage will the founders hold afterwards, does their share count change, and why might they still be better off?
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