Cap Table
A cap table is the ownership ledger of a company, showing equity holders, option pools, preferences, convertibles, and dilution across rounds. Allocators evaluate cap table health because it predicts financability, founder incentives, and how exit proceeds will actually distribute.
In venture, the cap table is the financial and incentive system of the company. It governs ownership, dilution, preference stacking, and ultimately the distribution of proceeds. Many venture outcomes fail not because the product fails, but because the cap table becomes unfinanceable or incentives break.
From an allocator perspective, cap table analysis is essential because it reveals:
- true ownership exposure,
- structural fragility (preferences, convertibles, SAFEs), and
- whether future rounds can be raised without destroying alignment.
How allocators define cap table health
They assess:
- Preference stack: seniority and multiples across rounds
- Convertible overhang: SAFEs/notes and conversion outcomes
- Option pool burden: whether dilution is repeatedly pushed to common
- Insider vs outsider dynamics: who controls outcomes and incentives
- Cleanliness for next round: whether new investors will accept the structure
- Exit waterfall: who actually gets paid at different exit values
Allocator framing:
“Is the cap table a growth enabler—or an incentive and financability trap?”
Common cap table failure modes
- stacked SAFEs with aggressive caps
- repeated insider bridges without repricing clarity
- high liquidation preference overhang blocking reasonable exits
- option pool increases that continuously dilute founders/employees
- misaligned incentives after multiple resets
How allocators evaluate VC managers
Conviction increases when managers:
- maintain clean structures and avoid unnecessary complexity
- protect founder/employee incentives where possible
- disclose preference stacks and convertibles transparently
- show discipline in rescues and bridges
- have evidence of financing cleanly through stress regimes
What slows allocator decision-making
- opaque reporting on cap table structures
- “headline valuation” without showing waterfall reality
- repeated structured rounds hiding true repricing
- inability to explain dilution outcomes in past funds
Common misconceptions
- “Valuation tells you ownership” → ownership is shaped by conversion, options, and preferences.
- “Cap tables don’t matter until exit” → they matter most when trying to raise the next round.
- “Complexity is normal” → complexity is common, but it has real costs.
Key allocator questions
- What does the exit waterfall look like at $100M / $300M / $1B?
- How much convertible overhang exists and at what caps?
- What is the preference stack and does it block exits?
- How aligned are founders and employees after dilution?
- Can this company raise again under realistic market conditions?
Key Takeaways
- Cap table health predicts financability and alignment
- Preference stacks and convertibles can distort “paper value” into non-distributable outcomes
- Strong managers keep structures clean and report waterfalls transparently