Cap Table 101: What Every Founder Needs to Know Before Raising Money

Your cap table — short for capitalisation table — is a spreadsheet that records who owns what percentage of your company. It sounds simple. But a messy, inaccurate or poorly structured cap table is one of the most common deal-killers in Indian startup fundraising. Here's what every founder needs to know before raising money.

What Is a Cap Table?

A cap table lists every equity owner of your company — founders, investors, ESOP pool holders — along with the type of security they hold (equity shares, CCPS, SAFE notes, warrants), the number of shares, and the resulting ownership percentage.

Why It Matters More Than You Think

Investors review your cap table in the first 30 minutes of due diligence. What they're looking for:

• Founder ownership: If founders are below 40% before Series A, it raises red flags about motivation and control
• Clean history: No unresolved shareholder disputes, no undocumented transfers
• ESOP pool: Is there enough headroom to attract senior talent?
• Debt/convertibles outstanding: SAFEs, CCDs, and convertible notes that will dilute on conversion
• Authorised vs issued capital: Is there room to issue new shares without another EGM?

Key Instruments on an Indian Startup Cap Table

Equity Shares

The basic unit of ownership. Founders and common investors typically hold equity shares. Each equity share carries one vote and participates in dividends and liquidation proceeds.

CCPS — Compulsorily Convertible Preference Shares

The standard instrument for VC/angel investment in India. CCPS holders have preference in liquidation (get their money back first), but must convert to equity on a triggering event (IPO, acquisition, or time-based conversion). Most Indian term sheets use CCPS.

ESOP Pool

Employee Stock Option Pool — shares reserved to grant options to employees. Industry standard is 10–15% pre-Series A. VCs typically ask for the ESOP pool to be created before their investment (pre-money), increasing dilution to existing shareholders.

A VC asking for a 15% post-money ESOP pool and investing at a $5M pre-money valuation is actually investing at an effective lower valuation for founders. Always model the fully diluted cap table before signing term sheets.

SAFE Notes

Simple Agreement for Future Equity — a US-origin instrument increasingly used in Indian early-stage funding. SAFEs convert to equity at the next priced round (usually at a discount or with a valuation cap). RBI compliance is critical for foreign SAFEs.

The Fully Diluted Cap Table

Always maintain a fully diluted cap table — one that shows ownership assuming all convertible instruments (CCPS, SAFEs, ESOPs, warrants) have converted to equity. This is what investors use to calculate their post-investment ownership percentage and what you use to model the impact of new funding rounds.

Cap Table Red Flags for Investors

• Founders below 40% before Series A
• More than 5–6 angel investors (signals messy governance)
• Unequal founder splits without vesting schedules
• Missing shareholder agreements or share certificates
• ESOP grants not properly documented or approved by the board
• Convertible notes with punitive interest rates or unclear conversion terms

Vesting Schedules — Protect Everyone

Every founder and key employee should be on a vesting schedule — typically 4 years with a 1-year cliff. This means:

• Nothing vests in the first year (the cliff)
• 25% vests at the 1-year mark
• Remaining 75% vests monthly over the next 3 years

Without vesting, a co-founder who leaves after 6 months walks away with their full equity — a disaster for the remaining founders and for investors.

Modelling a New Funding Round

Before signing any term sheet, model exactly what happens to your cap table post-investment:

• What is the pre-money valuation?
• How much new capital is coming in?
• What is the post-money valuation?
• What percentage does the new investor get?
• What are the founders' fully diluted percentages after the round?
• Are existing convertible instruments converting in this round?

BYF builds and maintains clean, investor-ready cap tables for Indian startups — from seed to Series B. We also model funding round scenarios and ESOP pools before you enter negotiations. Get in touch for a free cap table review.