How to read a cap table, and the numbers that actually matter
Ownership percentages tell you less than the waterfall does. Both are worth understanding before you sign anything.
A cap table lists who owns what. Reading it well means knowing which version you are looking at and what it omits.
Issued versus fully diluted
**Issued** counts shares actually held today. **Fully diluted** adds everything that could become shares — the unallocated option pool, granted but unexercised options, warrants, and convertible instruments such as SAFEs and notes.
Fully diluted is the number that matters, because it is what you own after everything converts. A founder reading issued ownership is reading a flattering and misleading figure.
Share classes
Common stock is typically founders and employees. Preferred is typically investors, and carries the preference and protective rights. Two holders with identical percentages and different classes do not have identical positions.
The waterfall
This is the exit distribution model. Apply each preference in order of seniority, then distribute the remainder to common. It answers the only question that matters: at a given exit price, what does each holder actually receive?
Run it at a low exit value as well as a high one. Preferences dominate small outcomes — there are exits where the common stock receives nothing while the headline number sounds like a success.
“Percentage ownership is a claim on the remainder. The preferences decide how much remainder there is.”
Common errors
- Missing option grants promised verbally and never issued.
- Stale 409A valuations.
- Vesting schedules tracked in a spreadsheet nobody has updated.
- Advisory shares agreed and never documented.
Practical points
- Keep one authoritative cap table and treat every other copy as a snapshot.
- Model the waterfall before each round, not before each exit.
- Reconcile the cap table to the corporate records annually.