Introduction to Cap Table Model

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A professional cap table is a financial document that describes the ownership structure of a company. It lists all shareholders, founders, employees, investors and advisors and shows how much equity each person holds. For startups, cap table is the most important financial tool because it highlights who owns how many shares, how much dilution has occurred and how financial decisions in the future will impact ownership.

A cap table includes founder's shares, ESOP pools convertible instruments like SAFEs and notes, priced equity rounds and other outstanding options. A professional-grade table goes beyond simple percentages; it includes formulas, valuation logic, conversion mechanics, and scenario modeling. This ensures accuracy when the company raises capital, awards stock options, onboards investors, or plans an exit.

At the time of incorporation, founders allocate initial shares and as the company grows, it raises capital through pre-seed, seed, series A and much more. Each time new shares are issued, existing ownership gets diluted. The cap table calculates these dilution effects by tracking pre-money evaluation, post-money valuation, share price and the number of new shares during each round.

Convertible instruments such as SAFEs and convertible notes convert into equity at the time of a priced round. A professional cap model automatically computes the conversion using valuation caps, discounts or both. It also maintains ESOP pool which sets aside equity for employees and must be adjusted for major financial rounds.

In conclusion, a cap table helps the founders and investors make informed decisions about ownership, dilution, valuations, hiring and fundraising. This is important for transparency, planning and maintaining control of the company's long-term equity structure.

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