# Cap Table Analysis > cap-table-analysis - Skill: `brainbytes-dev/cap-table-analysis` (Agent Skill) - Install (CLI): `npx skillmds@latest add brainbytes-dev/cap-table-analysis` - Raw SKILL.md: https://api.skillmd.com/api/skills/brainbytes-dev/cap-table-analysis/raw - Safety review: pending - Works with: Claude Code, Claude.ai, OpenAI Codex - Category: Coding & Dev Tools - Author: brainbytes-dev (https://skillmd.com/u/brainbytes-dev) - Updated: 2026-09-17 - Page: https://skillmd.com/skills/brainbytes-dev/cap-table-analysis --- # cap-table-analysis Cap table modeling — rounds, dilution, option pools, liquidation preferences. ## When to Activate - Building or updating a capitalization table for a startup or private company - Modeling the impact of a new funding round on existing shareholders - Calculating dilution from option pool creation or expansion - Analyzing liquidation preferences and waterfall scenarios - Evaluating conversion scenarios for convertible instruments (notes, SAFEs) - Preparing for a liquidity event (M&A, IPO) and computing shareholder proceeds - Advising founders on the true cost of a proposed term sheet ## Core Concepts ### Cap Table Construction A capitalization table records every equity interest in the company — common shares, preferred shares, options, warrants, convertible instruments: - **Fully diluted share count**: Includes all issued shares plus all shares issuable upon exercise of options, warrants, and conversion of convertible instruments. This is the denominator for ownership calculations - **As-converted basis**: All preferred shares shown as if converted to common. Used for ownership percentage calculations - **Share classes**: Common (founder, employee), Preferred (Series Seed, A, B, C — each with its own terms) - **Authorized vs. issued vs. outstanding**: Authorized is the maximum; issued includes treasury shares; outstanding excludes treasury - **Ledger format**: Each transaction (grant, exercise, transfer, repurchase, conversion) recorded chronologically ### Share Class Economics Each preferred series has distinct economic rights that affect payout at exit: - **Liquidation preference**: Dollar amount preferred holders receive before common shareholders. Typically 1x the original investment - **Dividend rights**: Cumulative (accrues whether declared or not) or non-cumulative. Participating or non-participating - **Conversion ratio**: Initially 1:1 (one preferred share converts to one common share). Adjusted by anti-dilution provisions - **Voting rights**: Preferred may vote on an as-converted basis or have specific class votes (protective provisions) - **Redemption rights**: Rare in VC but some Series have a put right after 5-7 years ### Dilution Math Dilution is the reduction in ownership percentage when new shares are issued: ``` Dilution % = New Shares Issued / (Pre-Existing Shares + New Shares Issued) Pre-round ownership: Shares Held / Pre-Money Fully Diluted Count Post-round ownership: Shares Held / Post-Money Fully Diluted Count ``` - **Primary dilution**: New shares issued in a funding round - **Option pool dilution**: Creating or expanding the ESOP. If done pre-money, existing shareholders (including the new investor in economic terms) bear the dilution - **Anti-dilution dilution**: If anti-dilution protection triggers, additional shares are issued to prior investors — diluting common and unprotected shareholders further - **Cumulative dilution across rounds**: Multiply retention ratios: (1 - dilution_round1) * (1 - dilution_round2) * ... = cumulative retention ### Option Pool Creation and Shuffling - **Pre-money option pool**: The term sheet states the option pool as a percentage of pre-money fully diluted shares. This means existing shareholders create the pool before the new investment, bearing all the dilution - **Post-money option pool**: Pool created after the investment — dilution shared proportionally among all shareholders including the new investor. Less common but more founder-friendly - **Pool sizing**: Typically 10-20% at Series A. Should cover 18-24 months of hiring. Undersizing requires expansion (more dilution) sooner; oversizing wastes founder equity - **Shuffle**: Investors insist the pool is created pre-money, effectively lowering the real pre-money valuation of the operating company ``` Stated pre-money: $20M Option pool (15%): $3M worth of shares created pre-money Effective pre-money: $17M (value attributable to existing shareholders before pool) Investment: $5M Post-money: $25M Investor ownership: $5M / $25M = 20% Pool: 15% Founders + existing: 65% (not 80%) ``` ### ESOP (Employee Stock Option Plan) - **Vesting**: Typically 4-year vesting with 1-year cliff (25% vests at month 12, remainder monthly) - **Exercise price (strike price)**: Must be set at fair market value (409A valuation in the US). Determines the option holder's cost basis - **Diluted vs. vested**: Cap table should show both — fully diluted (all granted options) and vested only. Unvested options may be forfeited upon departure - **Early exercise**: Some plans allow early exercise (before vesting) subject to repurchase right. Creates 83(b) election opportunity for tax planning - **Cashless exercise**: At liquidity event, exercise price is netted from proceeds — no out-of-pocket cost for the holder ### Liquidation Preferences Determine how proceeds are distributed in a liquidity event (sale, dissolution, deemed liquidation): **1x Non-Participating Preferred:** - Investor gets back 1x their investment OR converts to common and shares pro rata — whichever is greater - At low exit values, the preference protects downside. At high exit values, conversion to common yields more - **Conversion threshold**: The exit value at which converting to common yields more than the preference. = Liquidation Preference / Ownership % **Participating Preferred:** - Investor gets 1x preference PLUS pro rata share of remaining proceeds as if converted to common - Double-dips: gets the money back and shares in the upside - Significantly more investor-favorable than non-participating **Participating with Cap:** - Participating up to a total return cap (e.g., 3x). After the cap, treated as converted to common - Compromise between non-participating and fully participating **Multiple liquidation preferences:** - 2x or 3x preference: Investor gets 2x or 3x their investment before common shareholders receive anything - Increasingly rare but appears in later-stage rounds, especially bridge or down rounds ### Conversion Scenarios - **Voluntary conversion**: Preferred holder converts to common when the pro rata common share exceeds the liquidation preference - **Automatic conversion**: Triggers upon IPO (typically at a minimum offering price and size) or upon vote of the preferred class - **Shadow preferred / Series stacking**: Each series may convert independently. In a waterfall, Series C gets paid first, then B, then A, then common. Earlier series may be "underwater" — their preference exceeds their pro rata value but conversion also yields less ### Pay-to-Play Compels existing investors to participate in subsequent rounds to maintain their preferential rights: - **Full ratchet conversion**: Non-participating investor's preferred converts to common (losing liquidation preference, anti-dilution, and other preferred rights) - **Shadow preferred**: Non-participating investor converts to a lesser class of preferred with reduced rights - **Purpose**: Prevents free-rider problem where existing investors refuse to participate in a down round while retaining their liquidation preference that subordinates new investors ## Methodology 1. **Gather all equity instruments**: Collect articles of incorporation, stock purchase agreements, option grants, convertible note and SAFE agreements, warrant agreements 2. **Build the share ledger**: Record every issuance, transfer, exercise, and cancellation chronologically 3. **Model each round**: For each funding round, compute pre-money shares, new shares issued, post-money cap table, and per-share price 4. **Layer in convertibles**: Model conversion of notes and SAFEs at the applicable discount, cap, or both — computing the effective price and resulting shares 5. **Option pool analysis**: Show the pool creation, allocated vs. unallocated, vested vs. unvested 6. **Waterfall analysis**: Model the distribution of proceeds at various exit values, applying liquidation preferences in priority order 7. **Sensitivity table**: Show each stakeholder's proceeds at different exit values ($10M, $25M, $50M, $100M, $250M, $500M+) ## Templates ### Cap Table Summary (Post-Series B) ``` Shares % (FD) Investment Price/Share Founder 1 3,000,000 24.0% — — Founder 2 2,500,000 20.0% — — Angel Investors 500,000 4.0% $500K $1.00 Series A (1x NP pref) 2,000,000 16.0% $4.0M $2.00 Series B (1x NP pref) 2,000,000 16.0% $10.0M $5.00 ESOP (allocated) 1,500,000 12.0% — various ESOP (unallocated) 1,000,000 8.0% — — Total Fully Diluted 12,500,000 100.0% $14.5M Post-money valuation: $62.5M ($5.00 * 12.5M shares) Pre-money valuation: $52.5M ``` ### Liquidation Waterfall (1x Non-Participating) ``` Exit Value ($M): 10 25 50 100 250 500 Series B (1x NP): Preference claim 10.0 10.0 10.0 — — — As-converted value 1.6 4.0 8.0 16.0 40.0 80.0 Receives 10.0 10.0 10.0 16.0 40.0 80.0 Series A (1x NP): Preference claim — 4.0 4.0 — — — As-converted value — 4.0 8.0 16.0 40.0 80.0 Receives — 4.0 8.0 16.0 40.0 80.0 Common + Options: Receives — 11.0 32.0 68.0 170.0 340.0 Check: Total 10.0 25.0 50.0 100.0 250.0 500.0 Breakeven for common: ~$14.5M (total liquidation preferences) Conversion threshold: Series B converts at: $62.5M ($10M / 16.0%) Series A converts at: $25.0M ($4M / 16.0%) ``` ### Dilution Tracker Across Rounds ``` Seed Post-A Post-B Post-C (est.) Founders 80.0% 56.0% 44.0% 35.2% Seed Investors 10.0% 7.0% 5.6% 4.5% Series A — 20.0% 16.0% 12.8% Series B — — 16.0% 12.8% Series C — — — 20.0% ESOP 10.0% 17.0% 18.4% 14.7% Total 100.0% 100.0% 100.0% 100.0% Founder dilution: — 30.0% 21.4% 20.0% Cumulative retention: — 70.0% 55.0% 44.0% ``` ## Quality Gate - [ ] All equity instruments captured: common, preferred (each series), options, warrants, convertibles - [ ] Share ledger reconciles to articles of incorporation and stock transfer records - [ ] Fully diluted share count includes all outstanding and issuable shares (exercisable options, convertible instruments) - [ ] Option pool shown as allocated (vested/unvested) and unallocated; strike prices recorded - [ ] Pre-money vs. post-money arithmetic verified, including option pool shuffle impact - [ ] Each preferred series' liquidation preference, participation, and conversion terms accurately modeled - [ ] Anti-dilution provisions modeled for the relevant scenario (broad-based weighted average, full ratchet) - [ ] Waterfall analysis computed at multiple exit values spanning downside through strong upside - [ ] Conversion thresholds calculated for each preferred series - [ ] Convertible notes and SAFEs modeled with correct discount, cap, and conversion mechanics - [ ] Dilution tracker shows cumulative impact on each shareholder class across all rounds - [ ] Pay-to-play implications modeled for non-participating investors