# 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](/content/learn/cap-table-101/2/?slide=1#ct101-section-overview/index.html). --- Click for sound **11:34** **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 company’s 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 on most founders’ minds: Dilution. ### 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 document, you’ve declared that you’re creating or authorizing 10 million shares. This is a number we see pretty typically. But as always in real life, make sure you talk to your legal advisors. For our example here, of that 10 million, you and your co-founder are going to issue yourselves a total of 9 million common shares. That leaves 1 million common shares that are also authorized but just haven’t been issued to anyone yet. That’s a key difference to be aware of. Just because the shares have been authorized doesn’t mean that they’ve been issued. You’ll see how this comes into play in a bit. ### Founder equity splits You and your co-founder can obviously decide to just split those 9 million shares right down the middle. That would be 4.5 million shares each. Or you can agree that one co-founder should get a higher ownership percentage based on their contribution. Whatever the case, the moment of incorporation is where you and your co-founder have to make these important decisions. For the sake of this example, let’s say you decide on a 55/45 split. Now let’s talk about that last million shares that you’ve left unissued. By leaving 1 million shares unissued, you’re essentially making sure that there will be shares available for other people like advisors, employees, and consultants in the future. ### Current status of the cap table Let’s take a look at how this looks on your cap table. You can view your cap table in several ways, for example, by share class showing that there are 10 million authorized shares of common, that 9 million of them have been issued and 1 million remains unissued. Or you can see the capitalization by stakeholder, showing two co-founders splitting authorized common shares, 55 to 45, and with a total of 10 million shares authorized. One big thing to note is the price per share column. In some states, you’re required to list what’s called the par value or nominal value of the shares. Since your company hasn’t had a chance to establish its value yet, you’ve listed a very small number like $0.0001 per share. ### Understanding Dilution So far, you and your co-founder are working on a product and realize you need to hire an engineering chief who can help you out for a few months. You agree to grant them 100,000 shares in the form of options, which come out of the 1 million share option pool that you reserved when you incorporated. We’re now looking at this. Notice how the number of available shares has gone down by 100,000 and how the co-founders' ownership percentage is suddenly a bit smaller. Whenever you raise money or bring on new talent, dilution is going to come into play. This process is called dilution, where more issued shares in total mean that each individual’s ownership percentage decreases. Here’s a scenario: You and your co-founder are moving forward and decide to raise your first round of outside funding with an investor. Your investor, named Carroll, offers you $100,000 for a SAFE agreement with a 20% discount and a $5 million valuation cap on the next funding round. When you add her to your cap table, you don’t yet know how many shares the SAFE will convert into, which will be determined by the next financing round. And that, my friends, is where things start to get a lot more interesting. ## Continue learning 3 sections • 13 videos • 1h 21m total length **Section 1: Introducing the cap table** Dive into the world of cap tables—how they work, types of equity offered, calculating ownership percentages, valuations, vesting schedules, and more. | Chapter | Length | | ------- | ------ | | [Chapter 1: What’s a cap table?](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/1/?slide=1) | 02.30 | | [Chapter 2: Incorporating, and creating your first cap table](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/1/?slide=2) | 06.50 | | [Chapter 3: Common vs. preferred shares](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/1/?slide=3) | 05.52 | | [Chapter 4: How convertible notes work](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/1/?slide=4) | 06.33 | | [Chapter 5: How SAFEs work](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/1/?slide=5) | 04.04 | | [Chapter 6: Stock options, strike prices, and vesting schedules](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/1/?slide=6) | 09.10 | | [Chapter 7: Valuations and fair market values](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/1/?slide=7) | 03.59 | **Section 2: Building the foundation that leads to success** Ready to create your first cap table? Begin the journey of a fictional company as we build a cap table from scratch, bring in an advisor, raise early funding rounds, and hire our first employees. | Chapter | Length | | ------- | ----- | | [Chapter 1: The seed round](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/2/?slide=1) | 11.34 | | [Chapter 2: The Series A, and your first valuation](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/2/?slide=2) | 07.49 | | [Chapter 3: Options pools, dilution, and converting the SAFE](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/2/?slide=3) | 06.18 | | [Chapter 4: What’s a valuation cap?](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/2/?slide=4) | 05.10 | **Section 3: The Series B (and beyond)** We’re upping the ante in Section 3 as we raise another funding round to scale our fictional company. We’ll also see how our cap table comes into play when the company sells, goes public, or has a liquidity event. | Chapter | Length | | ------- | ----- | | [Chapter 1: The Series B](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/3/?slide=1) | 09.28 | | [Chapter 2: Course recap](https://fund-forecasting@carta.com/sg/en/learn/cap-table-101/3/?slide=2) | 01.37 | ## Download our cap table template Ready to put your knowledge to the test? Download Carta’s free cap table template, and create your first cap table today.