Cap table 101 | section 2

Building the foundation that leads to success

Now that you know the fundamentals of equity, it’s time for the fun part: creating your first cap table. In this section, we build our cap table from scratch and see it evolve as we bring in an advisor, raise early funding rounds, and hire our first employees.

Start chapter 1 now or explore more sections below.

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Chapter 1: The seed round

Chapter 2: The series A, and your first valuation

Chapter 3: Options pools, dilution, and converting the SAFE

What's a valuation cap?

Transcript

All right. So in the first three lessons, we outlined some of the basic cap table terms and concepts that you need to understand as you start building out your company. Now it’s time for the fun part, where we start putting it all together in the next few lessons. We’re going to imagine a fictional company and follow the founding team through the whole process of legally creating their company, building their cap table, raising multiple rounds of financing, converting debt into equity and selling their company.

Along the way, you’re going to see in detail what each change in your cap table means and why it’s important to your companies. Survival and success. You ready? Let’s dive in.

Okay, So let’s run through the first four important steps in our fictional company’s journey. They are incorporation, how a co-founder split equity in the company, option pool planning and arguably the biggest thing I’m most founders’ minds. Dilution.

1. Incorporation: Let’s say you and your co-founder have filed your certificate of incorporation for your new company called Meetly. The process is pretty simple and straightforward. You just say who you are, what your business is, and how many shares you’re creating. All right. Congrats. You now have a company that’s legally incorporated. And in that incorporation, Doc, you’ve declared that you’re creating or authorizing 10 million shares. This is a number we see pretty typically.

2. Founder Equity Splits: You and your co-founder can decide to just split that 9 million shares right down the middle, or you can agree that one co-founder should get a little bit higher ownership percentage based on contributions.

3. Unissued Shares: By leaving 1 million shares unissued, you ensure that there will be shares available for other people like advisors, employees, and consultants in the future.

4. Dilution: As new shares get added into the mix, each person's ownership percentage will change. For example, you and your co-founder decide to grant 100,000 shares to an advisor in the form of options, which is taken from the 1 million share pool.

This concept of dilution is important to understand as it affects ownership percentages when new shares are issued.

Continue learning

Ready to create your first cap table? Begin the journey of a fictional company as we build a cap table from scratch and see it evolve.

Ready to put your knowledge to the test? Download Carta’s free cap table template, and create your first cap table today.