Question 1

What is a cap table?

Accepted Answer

A capitalization table lists all shareholders, their ownership percentages, equity types, and dilution through rounds. It is the official record of who owns your company. Accuracy is legally and financially critical.

Question 2

Should I use Carta or a spreadsheet?

Accepted Answer

Spreadsheets work initially but become error-prone as complexity grows. Carta or Pulley provide accuracy, legal document generation, and 409A valuations. Switch before your first option grants.

Question 3

What is a 409A valuation?

Accepted Answer

A 409A is an independent appraisal of your company's fair market value for stock option pricing. Required annually or after significant events. Underpricing options without a 409A creates tax problems.

Question 4

How much equity should I set aside for employees?

Accepted Answer

Typically 10-20% for the option pool, depending on hiring plans. Investors may want you to expand the pool before they invest (diluting only founders). Plan ahead for key hires.

Question 5

What are common equity mistakes to avoid?

Accepted Answer

Not vesting founder shares, missing 83(b) elections, issuing options without 409A, poor record-keeping, over-promising equity verbally, and not understanding fully diluted ownership.

Question 6

What is the difference between common and preferred stock?

Accepted Answer

Common stock goes to founders and employees. Preferred stock goes to investors with special rights (liquidation preference, anti-dilution, board seats). Preferred usually converts to common in an exit.

Question 7

How does dilution work?

Accepted Answer

When you issue new shares (to investors, option pool), existing shareholders own a smaller percentage. A 20% investment means 20% dilution. Understand fully diluted ownership, including all convertible instruments.

Question 8

What vesting schedule should I use?

Accepted Answer

Standard is 4-year vesting with 1-year cliff. After 1 year, 25% is vested, then monthly or quarterly thereafter. This structure is expected by investors and protects against early departures.

Question 9

What happens to unvested equity when someone leaves?

Accepted Answer

Unvested equity is typically forfeited and returns to the pool. For options, employees usually have 90 days post-departure to exercise vested options (some companies extend this).

Question 10

How do I model future funding rounds?

Accepted Answer

Cap table tools have scenario modeling. Input round size, valuation, and new option pool to see impact on ownership. Essential for negotiation and understanding dilution.

Question 11

What documents do I need for equity grants?

Accepted Answer

Stock Incentive Plan, individual Stock Option Agreements or RSU agreements, Exercise Notices, and 409A valuation report. Cap table platforms generate these automatically.

Question 12

What is a SAFE and how does it affect my cap table?

Accepted Answer

SAFEs convert to equity at a future priced round. They don't appear as ownership until conversion but affect dilution. Track SAFEs in your cap table tool to model conversion scenarios.

Question 13

How often should I update my cap table?

Accepted Answer

After every equity event: new grants, exercises, forfeitures, funding rounds. Review quarterly for accuracy. Before fundraising, ensure it is completely up to date.

Question 14

What is an option pool refresh?

Accepted Answer

When your option pool runs low, you may need to authorize more shares—a "refresh." This dilutes existing shareholders. Plan refreshes strategically, often as part of funding rounds.

Question 15

Who should have access to the cap table?

Accepted Answer

Founders, CFO/finance lead, and legal counsel need full access. Employees typically see only their own grants. Investors see the full table during due diligence. Protect this sensitive information.

I need to manage my cap table and equity

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