You can fix a broken product, but you cannot fix a broken cap table without painful legal surgery. This guide lists the specific mathematical traps that permanently dilute founders before they even hit Series A.

Cap table mistakes are mathematical errors in your equity structure that permanently reduce founder ownership or make the company uninvestable. Unlike code, these bugs compound with every funding round.

• Benchmark: Standard advisor equity is 0.1%–0.25%, not 1%+.
• Rule: "Four-year vesting, one-year cliff" applies to everyone, including you.
• Warning: The "Option Pool Shuffle" can silently cost you 10%–15% of your ownership.

How to read this: Use this list to audit your Cap Table Template before signing any term sheet.

Below are the 5 specific mathematical errors that kill founder equity. Review your current structure against these traps immediately.

1. The Option Pool Shuffle
This is the most common "gotcha" in term sheets. Investors often require the option pool (10–15%) to be created before their investment (pre-money). This means the dilution comes 100% from your pocket, not theirs. According to Carta's data, neglecting this negotiation can significantly impact founder ownership.

The Mistake: Agreeing to a "post-money" pool size without realizing it is calculated "pre-money."

Sample Math:

• Scenario: $4M Pre-money valuation. Investors invest $1M (20% stake). They demand a 10% option pool.
• If Pool is Post-Money (Shared Dilution): Founders dilute ~8%. Investors dilute ~2%.
• If Pool is Pre-Money (The Trap): Founders dilute the full 10% plus the 20% for investors. You effectively pay for the investors' future hires.
• Impact: You lose an extra 2–4% of the company instantly.

2. Dead Equity on Day 1
Founders often split equity 50/50 on incorporation day with no vesting. If a co-founder leaves in Month 6, they walk away with half the company.

The Mistake: Issuing shares without a Reverse Vesting Agreement.

Sample Math:

• Scenario: Founder A and B split 50/50.
• Event: Founder B quits after 6 months.
• Without Vesting: Founder B keeps 50%. You now have a 50% "uninvestable" company because no investor will fund a startup where half the equity is owned by a non-participant.
• With Vesting (1-year cliff): Founder B leaves with 0%. The equity returns to the pool.
• Impact: The difference between a viable company and an immediate wind-down.

3. The "Advisor" Tax
First-time founders often trade equity for "prestige," giving 1% to 5% to advisors who promise introductions that never happen. Market standarts suggest much lower ranges are appropriate.

The Mistake: Granting advisor equity outside of market standards.

Sample Math:

• Scenario: You give 3 advisors 1% each. Total: 3%.
• Market Standard: Advisors typically get 0.1% to 0.25%.
• The Cost: That 3% is worth roughly $300k at a $10M valuation. You essentially paid $100k per advisor for a few phone calls.
• Impact: That 3% is equal to the option pool needed for your first 5 senior engineers. You literally cannot afford to hire them now.

4. Liquidation Preference Overdose
In a desperate bid to raise capital, founders might agree to "2x liquidation preferences" or "participating preferred" stock.

The Mistake: Optimizing for headline valuation ($10M!) while ignoring structure terms.

Sample Math:

• Scenario: Investor puts in $2M at a $10M valuation but asks for a 2x Liquidation Preference.
• Exit: You sell the company for $5M (a modest success).
• Normal (1x): Investor gets $2M back. Founders/Staff split $3M.
• Trap (2x): Investor gets $4M (2 x $2M). Founders/Staff split **$1M**.
• Impact: You did all the work, sold the company, and the investor took 80% of the cash.

5. The SAFE Pile-Up
Using SAFEs (Simple Agreement for Future Equity) is fast, but stacking them with different valuation caps creates a "dilution bomb" that only detonates during your first priced round. Use a Seed Cap Table Builder to model these scenarios before signing.

The Mistake: Raising multiple tranches of notes without modeling the conversion.

Sample Math:

• Scenario: You raise $500k at $3M cap, then $1M at $5M cap.
• Series A: You raise a priced round at $10M.
• The Surprise: The early notes convert at their caps, not the Series A price. The $3M cap investors get shares at a ~70% discount to the Series A investors.
• Impact: Founders often wake up to find they own <40% of their own company after just the Seed round.

Compare your current numbers against these market standards to ensure you aren't over-diluting.

• Advisor Equity: 0.1%–0.25% per advisor. Anything above 0.5% is a red flag unless they are a working co-founder.
• Option Pool Size: 10%–15% for Seed/Series A. Larger pools (20%+) are usually an investor tactic to lower the effective price per share.
• Founder Vesting: 4 years with a 1-year cliff. This is non-negotiable for professional investors.
• Dilution per Round: Founders typically dilute 20%–25% in a standard priced round (Series A).