A cap table model is the dynamic spreadsheet (or software view) that tracks who owns what, how each new round dilutes existing holders, and what every stakeholder receives at exit. Done right, it’s the single source of truth for equity decisions — fundraising negotiations, option grants, and exit planning all run off it. Done wrong, it’s the source of the disputes that surface during diligence and stall a Series A close.
Below: the components every model needs, the dilution math that drives it, the tooling tradeoffs, and the mistakes that show up most often.
What the model actually contains
A working cap table model has three layers:
The static record lists every holder and security: name and type (founder, employee, angel, fund), class (common, preferred series, options, warrants, SAFEs), shares issued and outstanding, basic and fully-diluted percentages, and economic value per share.
The dilution engine projects how new issuances change ownership. Formulas recalculate as inputs change — pre-money, investment size, option pool top-up, anti-dilution adjustments. The point is running scenarios before signing.
The exit waterfall distributes proceeds in the correct order: senior preferred first, junior preferred next, participation rights, then common. The cap table is the input, the waterfall analysis is the output that founders, employees, and investors actually care about — and what we built Waterfalls.app to make tractable.
The three equity categories
Every cap table breaks ownership into three categories. Treat them with different rules.
Common stock — issued to founders at incorporation (typically at $0.0001–$0.001/share with reverse-vesting provisions) and to employees as direct grants or option exercises. Common is last in liquidation priority, subject to vesting, and carries one vote per share. Models must include unvested shares in fully-diluted calculations but track only vested shares for current economic ownership.
Preferred stock — created in priced rounds (Seed Preferred, Series A, B, C). Each series is its own security class with its own liquidation preference, conversion price, anti-dilution mechanics, and voting profile. Track each series separately. Don’t aggregate.
Option pool — reserved shares for future employee grants. Two crucial distinctions: granted vs ungranted (only granted options live in individual rows, but the full pool affects fully-diluted percentages), and pre-money vs post-money pool top-ups (huge dilution implication, covered below).
| Equity layer | Sits in | Counts toward fully-diluted | Counts toward basic |
|---|---|---|---|
| Founder common (vested) | Cap table rows | Yes | Yes |
| Founder common (unvested) | Cap table rows | Yes | No |
| Preferred (each series) | Cap table rows | Yes | Yes |
| Granted options | Cap table rows | Yes | Vested only |
| Ungranted option pool | Reserve | Yes | No |
| Outstanding SAFEs/notes | Memo line | At conversion | No |
Dilution math, the version that doesn’t break
The fundamental investor-ownership formula uses post-money valuation:
Investor % = Investment ÷ Post-Money Valuation
A $5M investment at $20M post-money = 25% for the new investor, leaving existing shareholders with 75%. Pre-money and post-money produce different ownership percentages for the same investment, which is why every term sheet should make the valuation method explicit.
Worked Series A: $15M pre-money, $5M raise, $20M post-money. Pre-round 10,000,000 shares at $1.50 each. New investor receives 3,333,333 shares at $1.50, total 13,333,333 shares post-round, new investor at 25%, existing holders pro-rata diluted by the same 25%. A founder previously at 40% drops to 30%; an angel at 20% drops to 15%.
The dilution itself is just (old shares ÷ total shares after issuance) × 100. The number you compare against is the change, not the absolute. And dilution doesn’t automatically mean economic value falls: if post-money rises faster than your dilution percentage, your equity is worth more in dollars even with a lower ownership share.
Anti-dilution complicates this. Broad-based weighted-average is the market standard for venture rounds — when a company prices a down round, existing preferred holders’ conversion price ratchets down using:
New conversion price = Old price × (A + B) ÷ (A + C)
where A is total fully-diluted shares before the new issuance, B is consideration received, and C is consideration that would have been received at the original price. Models need iterative calculation here because the new conversion price changes the fully-diluted share count, which changes downstream ownership percentages.
SAFEs and the modeling work they create
Post-money SAFEs simplified investor math (a $500K SAFE at a $10M cap = exactly 5% of the company at conversion, regardless of other SAFEs) but moved all the dilution onto founders. Stack three $500K post-money SAFEs at $10M caps and 15% of the company is gone before the priced round arrives. The model needs to track each SAFE separately — cap, discount, MFN status, signing date — and project conversion under multiple Series A scenarios. Pre-money SAFEs require even more work because their conversion math interacts: each SAFE dilutes the others.
Tooling: where Excel breaks
Excel works through Series A. After that, errors compound faster than diligence can catch them — formulas break on row insertion, version control falls apart across stakeholders, audit trails don’t exist, and every grant, exercise, and transfer needs manual updates.
Specialized platforms (Carta, Pulley, Shareworks) automate 409A workflows, electronic grant agreements, vesting tracking, and stakeholder portals. Practical path: Excel through pre-seed and seed, move to Pulley or Carta around Series A when transaction volume jumps and 409A obligations begin, upgrade further at growth stage if global compliance matters.
Term-sheet comparison: the actual workflow
The most valuable thing a model does for founders is comparing competing term sheets side by side. Higher pre-money valuation isn’t always the better deal — the structure around it usually matters more.
A real comparison. Offer A: $18M pre-money, $5M check, 1× non-participating, broad-based weighted-average anti-dilution, no option pool top-up. Offer B: $20M pre-money, $6M check, 1× participating, full ratchet anti-dilution, 5% pool top-up required. Offer B looks better on pre-money. After modeling: Offer A leaves founders with materially more equity, milder anti-dilution exposure, no immediate dilution from a pool top-up, and far better outcomes in the $30–$75M exit range where participating preferred bites hardest. The valuation gap doesn’t compensate.
Run a sensitivity analysis on dilution at each pre-money option in $2.5M increments and you’ll see where the curves cross. Then run the waterfall analysis at $30M, $75M, and $150M exits to see what each shareholder actually receives. Founders almost always sign the wrong term sheet when they look only at the headline number.
Mistakes that show up in diligence
Five errors recur across every diligence cycle:
- Option pool treatment. A “20% post-money pool on $15M pre-money” usually means the $15M pre-money already includes the expanded pool. Founders bear the dilution from the top-up, not new investors. Confirm the pre-money/post-money pool point in the term sheet itself.
- Missing ungranted options in fully-diluted. Excluding the unallocated pool overstates current ownership.
- Vesting calculation errors. Wrong start dates, missed cliffs, or lost acceleration provisions show up in employment disputes.
- Stale conversion prices after anti-dilution events. Models must auto-update preferred conversion prices when down rounds trigger weighted-average adjustments — and re-run the convertible preferred stock conversion math each time.
- Liquidation preference stacks calculated wrong. Order matters (senior first), and participation caps require step-down logic. Errors here directly mis-state the exit waterfall.
A 60-second validation checklist: ownership percentages sum to exactly 100%, fully-diluted includes all options and convertibles, liquidation preferences match each term sheet, vesting matches every grant agreement, and the waterfall distributes the exact exit amount with no rounding gap.
Frequently Asked Questions
What’s the difference between basic and fully-diluted ownership? Basic includes only issued shares and vested options. Fully-diluted assumes every option, warrant, and convertible converts to common. Fully-diluted percentages are always lower and are what investors negotiate against.
How often should I update the cap table? Immediately after every transaction (round, grant, exercise, transfer, cancellation) and a full validation review at least quarterly even without new transactions.
Do option pools dilute founders or investors? Pre-money pool top-ups dilute founders (because the pre-money valuation includes the expanded pool). Post-money top-ups dilute everyone proportionally. Term sheets should specify which.
What happens to the cap table in a down round? Anti-dilution provisions trigger conversion-price adjustments that issue additional preferred shares to existing investors, further diluting common holders. The exact mechanics depend on whether anti-dilution is broad-based weighted-average, narrow-based, or full ratchet.
Should the model include unvested equity? Include in fully-diluted, exclude from basic. Display both clearly and label which is which.
Best cap table software for early stage? Pulley or Carta. Pulley is simpler and cheaper; Carta scales better through growth stage.