Cap Table 101: The Founder FAQ (Vesting to Exit)
last updated: Feb 16, 2026
You think you own 100% of your company until you see the math on a term sheet. This guide clears the fog around cap table terminology so you don't accidentally negotiate away your control.
TL;DR: The basics
A cap table (capitalization table) is a record of who owns what percentage of your company, including equity dilution from stock option pools and future investment rounds. It is the single source of truth for your startup's ownership structure.
How to read this: We broke this down into the specific definitions, benchmarks, and risks you need to know before signing anything.
- Benchmark: Early-stage employee option pools typically range from 10–15% of the fully diluted equity.
- Rule: Never confuse "Authorized Shares" (the max limit) with "Issued Shares" (actual ownership).
- Warning: Failing to file an 83(b) election within 30 days of incorporation can result in massive tax bills later.
How to read this: We broke this down into the specific definitions, benchmarks, and risks you need to know before signing anything.
Glossary
- Authorized shares: The total number of shares a company can issue, as defined in its charter. Think of this as the size of the pie tin, not the pie itself.
- Issued shares: The shares actually given to founders, investors, and employees. This is the pie currently baked.
- Outstanding shares: Issued shares minus any shares the company bought back.
- Fully diluted: The ownership percentage calculated assuming all options, warrants, and convertible notes are turned into stock.
How to track your cap table
You don't need expensive software on Day 1. You need a clean spreadsheet. If you are building your own tracker, ensure you have these exact columns to avoid legal headaches later. You can also use our Cap Table Template to get started immediately.
The minimum viable cap table structure
Why this matters: Lawyers charge $400+ per hour to clean up messy Excel files. Using a standardized format prevents errors that cost thousands to fix with Cap Table Mistakes Cleanup Scripts.
The minimum viable cap table structure
- Column A: Shareholder Name (Legal entity name, not nicknames)
- Column B: Role (Founder, Investor, Employee, Advisor)
- Column C: Stock Class (Common vs. Preferred)
- Column D: Shares Issued (The hard number)
- Column E: Options Granted (For employees/advisors)
- Column F: Fully Diluted Shares (Sum of Issued + Options)
- Column G: Ownership % (Fully Diluted Shares / Total Fully Diluted Shares)
Why this matters: Lawyers charge $400+ per hour to clean up messy Excel files. Using a standardized format prevents errors that cost thousands to fix with Cap Table Mistakes Cleanup Scripts.
Benchmarks
Don't guess at these numbers. Use market standards to defend your valuation.
1. The option pool standard (10 – 15%)
Investors will demand you create an option pool (shares reserved for future employees). Data from HSBC Innovation Banking suggests a 10 – 15% pool is standard for early-stage rounds.
Sample math: The pre-money shuffle
Investors usually make you create this pool before their money counts (pre-money). This means the dilution comes 100% from you.
2. Standard vesting schedules
According to Carta's equity data, the industry standard is a 4-year vesting schedule with a 1-year cliff.
1. The option pool standard (10 – 15%)
Investors will demand you create an option pool (shares reserved for future employees). Data from HSBC Innovation Banking suggests a 10 – 15% pool is standard for early-stage rounds.
Sample math: The pre-money shuffle
Investors usually make you create this pool before their money counts (pre-money). This means the dilution comes 100% from you.
- Scenario: Investors want a 10% post-money option pool.
- Pre-investment: You own 100%.
- The shuffle: To get that 10% pool post-money, you have to dilute your ownership before the investor buys their shares.
- Result: You drop from 100% to roughly 80–85%, the investors take 10–15%, and the pool sits at 10%. You pay for the talent, not the investor.
2. Standard vesting schedules
According to Carta's equity data, the industry standard is a 4-year vesting schedule with a 1-year cliff.
- The cliff: If you or an employee leave at day 364, ownership is 0%. At day 365, 25% of the shares vest immediately.
- Monthly vesting: After the cliff, shares typically vest monthly (1/48th of the total grant per month).
Authorized vs issued shares
This is the concept that trips up 90% of first-time founders. We call it the "Pie Tin" analogy.
Sample math:
Result: The company has 2,000,000 authorized but unissued shares sitting in the treasury. You each own 50% of the issued stock, not 40%. Ownership is always calculated based on the issued (denominator) shares.
- Authorized: The theoretical limit (The Tin). You cannot give out more than this without legal paperwork. Most founders incorporate with 10,000,000 authorized shares to make the math easy.
- Issued: What you actually sign over to yourself (The Pie).
Sample math:
- You authorize 10,000,000 shares.
- You issue 4,000,000 to Founder A and 4,000,000 to Founder B.
Result: The company has 2,000,000 authorized but unissued shares sitting in the treasury. You each own 50% of the issued stock, not 40%. Ownership is always calculated based on the issued (denominator) shares.
Risks
1. The 83(b) tax bomb
If your shares are subject to vesting, you must file an 83(b) election with the IRS within 30 days of receiving your shares. The IRS Form 15620 instructions confirm this deadline is strict—there is no fix if you miss it.
2. Unvested shares (golden handcuffs)
When you grant shares (even to yourself), they usually "vest" over time. If you leave early, unvested shares vanish.
If your shares are subject to vesting, you must file an 83(b) election with the IRS within 30 days of receiving your shares. The IRS Form 15620 instructions confirm this deadline is strict—there is no fix if you miss it.
- If you file: You pay tax on the value of shares at grant (usually near $0).
- If you miss it: You pay income tax on the value of shares every time they vest. If your startup grows, this could mean owing the IRS thousands of dollars for stock you haven't sold yet.
2. Unvested shares (golden handcuffs)
When you grant shares (even to yourself), they usually "vest" over time. If you leave early, unvested shares vanish.
- Founder departure: If you leave after 1 year of a 4-year schedule, you keep 25% of your stock. The remaining 75% is repurchased by the company, usually at par value ($0.0001).
- Employee departure: Unvested options return to the pool to be used for their replacement.
Conclusion
Mastering cap table math is defensive, not offensive. You can have a legally perfect cap table with a pristine 10% option pool, but if your other variables (Offer, Strength, Market Timing) are weak, your probability of hitting $10k MRR remains near 0%.
I see founders spend weeks obsessing over equity splits for a company with no revenue. That is procrastination disguised as productivity. You cannot use advanced tools like our Seed Cap Table Builder effectively if you are just moving zeroes around a spreadsheet. The equity is worth nothing until you sell something.
I see founders spend weeks obsessing over equity splits for a company with no revenue. That is procrastination disguised as productivity. You cannot use advanced tools like our Seed Cap Table Builder effectively if you are just moving zeroes around a spreadsheet. The equity is worth nothing until you sell something.
FAQ
- You:What is the difference between common and preferred stock?Guide:Founders and employees typically hold common stock. Investors usually get preferred stock, which comes with special rights like getting paid first during a sale (liquidation preference) or anti-dilution protection.
- You:Does a convertible note show up on the cap table?Guide:Not technically, until it converts. However, you must track it on a "pro-forma" cap table to understand how much it will dilute you when the next equity round closes.
- You:Can I fix a cap table if I issued shares incorrectly?Guide:Yes, but it is expensive. Legal cleanups often cost more than the initial incorporation. If you made errors, identify them early before a lawyer charges you by the hour to find them.
No-BS guides
📉 Avg founder's probability: 12%
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You spent 5 minutes reading about tactics. Don't leave without checking if your current strategy can get you to $10K MRR in the next 90 days.