A capitalisation table, almost always called a cap table, is a spreadsheet or software record that shows who owns a piece of a company, how much they own, and in what form. It lists founders, investors, employees with options, and anyone else holding equity. For a startup, the cap table is as important as the bank account. Mess it up early and fixing it later can cost real money and real time.
What a cap table actually contains
A basic cap table records four things: the name of each equity holder, the type of security they hold, the number of units they hold, and their percentage of the total. That sounds simple. In practice, cap tables get complicated fast because companies issue different types of equity at different stages.
Common share types on a startup cap table include ordinary shares (usually held by founders), preference shares (typically issued to investors), and employee share options. Each type has different rights. Preference shares often carry liquidation preferences, meaning investors get paid before ordinary shareholders if the company is sold. A cap table that doesn't capture those preferences gives a misleading picture of what each party would actually receive in an exit.
Options deserve special attention. An employee with 10,000 options doesn't own shares yet. Options convert to shares only after vesting conditions are met and the employee exercises them. Cap tables generally show two ownership calculations: one on a basic or "issued" basis, and one on a "fully diluted" basis that includes all options and convertible instruments as if they had already converted. Investors almost always care about the fully diluted number.
Why convertible notes change everything
Many Australian startups raise their first external money through convertible notes rather than a straight equity round. A convertible note is a loan that converts into shares at a future funding round, typically at a discount to the round price or with a valuation cap that protects the early investor. The problem is that convertible notes don't appear on a cap table as shares because they aren't shares yet. They sit off to the side until they convert.
If a founder raises a seed round through convertible notes and then raises a Series A, the conversion of all those notes can dilute founders significantly more than they expected. This is one of the most common shocks in early-stage fundraising. Understanding what a convertible note is and how it works before you sign one is essential, because the cap table impact only becomes visible at the next round.
How dilution works in practice
Dilution is what happens to your ownership percentage when new shares are issued. Say two founders each own 50% of a company. They raise a seed round and issue new shares equal to 20% of the post-money company. Each founder now holds 40%. Their share count didn't change. The total share count grew, so their slice shrank.
Dilution is not inherently bad. If a $500,000 investment grows the company enough, owning 40% of a bigger pie is worth more than owning 50% of the original one. The danger is unexpected dilution: from options that vest, from convertible notes that convert at aggressive terms, or from anti-dilution provisions that protect investors at the founder's expense. A clean cap table makes these scenarios visible before they happen.
Employee share option pools add another layer. Investors typically ask for an option pool to be created before their investment closes, which means the pool dilutes founders, not investors. A 10% option pool sounds modest. On a two-founder company, each founder absorbs 5% of dilution before a single dollar of investment lands.
Common cap table mistakes
Three mistakes appear repeatedly in early-stage Australian companies. First, keeping the cap table in a basic spreadsheet with no version control. When a new round closes or an employee exercises options, the old version doesn't get updated and the numbers drift. Second, not documenting founder vesting. If founders haven't agreed on vesting schedules and one leaves after six months, the company may have a large shareholder with no ongoing role, which investors treat as a serious red flag. Third, ignoring the difference between authorised shares and issued shares. A company can authorise 10 million shares but only issue 3 million. The cap table must reflect what's issued, not what's authorised.
Cap table software versus spreadsheets
For a company with two founders and no outside investors, a spreadsheet is fine. Once convertible notes, preference shares, and an option pool enter the picture, dedicated cap table software earns its cost. Platforms like Carta automate the modelling of dilution scenarios, track option vesting, and produce the reports investors expect during due diligence. They also reduce the risk of formula errors that can make a spreadsheet untrustworthy at the worst moment.
The cost of a cap table error discovered during a funding round is almost always higher than the cost of the software. Investors who find inconsistencies in a cap table during due diligence don't just ask for corrections. They often reduce their valuation or walk away entirely.
What investors look for when they review your cap table
A sophisticated investor checks several things immediately. They want to see that founders hold a meaningful stake after earlier dilution, because a founder with 5% ownership has limited incentive to keep building. They look at the option pool size and how much has been granted versus reserved. They check for existing investors with unusual rights, such as pro-rata rights or veto powers, that could complicate future rounds. They also model what their ownership will look like after the current round closes, factoring in any unconverted notes.
Burn rate and cap table health are related concerns. A startup burning through cash quickly while carrying a complicated cap table faces compounding pressure: it needs to raise again soon, but the ownership structure makes the next raise harder. Understanding what burn rate actually means for startups sits alongside cap table literacy as a core financial skill for any founder.
Keeping the cap table honest over time
The cap table is a living document. It changes every time shares are issued, options vest and are exercised, a note converts, or a shareholder transfers their stake. Founders who treat it as a one-time task rather than an ongoing record end up with a document that no longer matches the company's legal share register.
In Australia, the share register maintained under the Corporations Act 2001 is the legally definitive record. The cap table should always reconcile with it. If the two diverge, the share register wins in a legal dispute. Regular reconciliation, at minimum after every corporate event, prevents the kind of discrepancies that derail due diligence.
A clean, accurate cap table won't raise money on its own. But a messy one can stop a deal that should have closed.