Understanding Cap Tables: What Your Cap Table Must Have
Introduction
A capitalization table, or cap table, is the central record of a company’s equity ownership. It shows who holds equity, how the capital structure evolves, and how each change affects ownership and dilution. As a company raises capital, issues options, or creates additional share classes, the cap table becomes a living document that captures the full history of those decisions. For startups and growth-stage businesses, it supports conversations with investors, informs fundraising strategy, and provides essential inputs for valuations and audits.
Redwood reviews thousands of cap tables each year across a wide range of industries and financing stages. That experience offers a clear view into what a functional, investor-ready cap table requires and how it supports accurate, defensible valuation work.
What Is a Cap Table?
A cap table is a spreadsheet or document that outlines the equity ownership of a company's stakeholders, including investors, founders, and employees. It typically includes details like the number of shares owned, the type of equity (common or preferred stock, options, warrants), and the percentage of total ownership.
In essence, a cap table is the ledger of your company's ownership. It's an invaluable resource for startups, as it helps illustrate the company's potential valuation at various funding stages, the potential impact of future funding rounds, and equity dilution.
How Cap Tables Work
Cap tables provide a detailed breakdown of who owns what in your company. They can be simple in the early stages of a startup, but they tend to become more complex as the company grows, more shares are issued, new equity types are introduced, and more rounds of funding are secured.
Cap tables evolve with every change in your company's equity structure. For example, if you issue new shares, the cap table will be updated to reflect this. Similarly, if an employee exercises their stock options, this change is recorded in the cap table.
Key Elements Every Cap Table Should Capture
Every cap table looks a little different, but certain components are essential for clarity, audit readiness, and accurate valuation modeling. A well-structured cap table should clearly identify who owns equity, what type of equity they hold, and how those holdings translate into economic and voting rights. It should also distinguish between equity classes and contractual instruments so ownership is not blended or misrepresented as the capital structure evolves.
Investors and Shareholders
Each equity holder should be listed with enough detail to establish ownership, pricing, and dilution clearly. At a minimum, this includes:
Name or entity
Security type
Number of shares or granted units
Original purchase price or exercise price
Percentage ownership on both a basic and fully diluted basis
This information provides visibility into who holds economic and voting power and serves as the foundation for dilution analysis, investor rights review, and valuation work.
Equity Classes
Cap tables should clearly separate and summarize each class of equity rather than aggregating holdings across instruments. This typically includes:
Common stock
Each preferred class, such as Series Seed, A, B, or C
Option grants
Warrants
RSUs, if applicable
For preferred stock, additional detail is essential, including:
Per-share price
Liquidation preferences
Conversion ratios, where relevant
Total shares authorized and issued
Presenting each class distinctly allows investors, auditors, and valuation professionals to understand seniority, preferences, and economic outcomes under different scenarios.
Options, Warrants, and the Option Pool
Equity awards and contractual rights to acquire shares require the same level of precision as issued stock. A detailed option and warrant ledger should track:
Total options or warrants granted
Awards outstanding versus exercised
Remaining shares available in the option pool
Exercise prices
Vesting status and grant dates
When these details are fragmented across spreadsheets, emails, or incomplete records, it becomes difficult to establish the true capital structure. For 409A valuations, ASC 718 expense modeling, and waterfall analyses, a complete and current view of equity awards is critical.
Navigating More Complex Cap Tables
As companies scale, cap tables must accommodate more sophisticated structures. Growth-stage and later-stage companies often introduce multiple preferred classes with specific protective provisions, liquidation preferences, conversion mechanics, and participation features. Convertible notes and SAFEs may convert into different classes depending on the terms of the financing. Some companies experience significant secondary activity as employees and early investors sell portions of their holdings. Others undergo recapitalizations that reset the framework entirely.
These situations require careful coordination between legal documentation, cap table management platforms, and valuation models. A cap table that lacks detail or contains outdated information can create friction during financing, extend the audit cycle, and complicate the 409A and ASC 820 valuation process. Precision matters, especially once the capital structure begins influencing employee compensation, financial reporting, and investor economics.
How Cap Tables Support Valuation Work
Accurate valuations depend on accurate cap tables. Whether the engagement involves a 409A valuation, a portfolio valuation under ASC 820, or a complex securities analysis, the valuation team relies on the cap table to understand who owns what and how different securities convert under various scenarios. The structure of the cap table directly informs the allocation of value between common shareholders, preferred holders, and option recipients. Any omissions or inaccuracies in the cap table can affect the resulting valuation and may prompt questions from auditors or counsel.
Because of this, companies often use valuation engagements as an opportunity to reconcile and clean up their cap tables before major events such as new fundraising rounds, annual audits, or liquidity planning. A well-organized cap table helps streamline the valuation process and builds confidence in the final models and conclusions.
When to Seek Additional Support
As the number of stakeholders and financing events increases, maintaining a cap table manually becomes challenging. Many companies adopt cap table management platforms to reduce the risk of version-control issues and to maintain clear records for investors, auditors, and legal teams. These platforms can help track vesting, manage approvals, and ensure that ownership details remain aligned with executed agreements.
Although Redwood does not manage cap tables directly, we review them in every valuation engagement and often help companies identify inconsistencies or missing information. When needed, we can direct teams toward providers that offer reliable cap table support and technology solutions aligned with the needs of venture-backed and growth-stage businesses.
Final Thoughts
A cap table sits at the center of your company’s ownership and economic rights. As your business grows and your capital structure becomes more complex, accuracy matters. A well-maintained cap table helps investors understand dilution, supports audit and valuation work, and reduces confusion when key decisions arise. When the data is current and clearly structured, your capital stack reflects the company’s true economic reality.
If you are preparing for a valuation, audit, or financing event, Redwood’s team can review your cap table to help ensure it is complete, consistent, and ready to support the work ahead. Contact us today!
Frequently Asked Questions
We’ve helped hundreds of startups and established businesses complete valuations. Here are some common questions.
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A cap table should show each equity holder, the type and amount of equity they own, and the ownership percentage that results from those holdings. It should also distinguish between equity classes, summarize preferred stock terms when relevant, and track option and warrant activity so the full capital structure is clear.
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Valuation work depends on a complete and reliable understanding of the company’s capital structure. A cap table informs how value is allocated across common and preferred shareholders, option holders, and other stakeholders. Missing or outdated entries can create issues during 409A valuations, ASC 820 portfolio valuations, and audit reviews.
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A cap table should be updated any time the equity structure changes. New financings, SAFEs or notes converting, option grants or exercises, and secondary activity all require updates. Waiting until year-end or audit season increases the likelihood of errors or inconsistencies.
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Cap tables become more complex as companies raise multiple rounds, add preferred stock with specific economic rights, issue equity-based compensation, or incorporate convertible instruments. Growth-stage companies often see increased complexity from secondary transactions, expanding option pools, and recapitalizations.
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Many companies adopt a cap table platform once they begin issuing options or raising institutional funding. These systems help track vesting, manage amendments, and maintain alignment between legal documents and equity records. A platform also simplifies valuation and audit preparation.
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