What's in Your Cap Table?

Six pieces of a startup cap table, each blown up from the real thing. Every number shown is made up for illustration.

Common Authorized

8,500,000 / 10,000,000

Shares issued

Authorized vs. issued

What a difference issuance makes

  • TLDR: your Certificate of Incorporation creates stock with a "par value" - a minimum possible value.
  • That makes it *available* for issuance.
  • To actually issue it, you need more: Board approval, a contract, and "consideration" (payment of some kind).
  • Equity financings (aka priced round investments) usually create and issue new classes of stock.
  • Most startups begin with just one "class" of stock: Common Stock.

Plan Reserved Shares

250,000 / 1,000,000

Option shares used

250,000 granted · 0 exercised

Reserved vs. granted

Making Space for Equity Incentives

  • TLDR: Using options or similar equity incentive compensation legally and effectively requires prerequisites.
  • Once your company is fully formed, your board and Stockholders adopt an Equity Incentive Plan. Missed this? Don't worry, we have a fast fixed-fee package for it.
  • Another prerequisite: optimally, you have an independent valuation (aka a 409A Valuation) dated within the last year. This is for the IRS.
  • Your plan reserves shares; your Board grants them as options or other forms of Equity Compensation allowed by your plan.
  • Most options "vest," which we explain below.

Options

Name
Priya Raman
Form of option
ISO
Shares
40,000
Price/Share
$0.42
Document
Option Agreement (ISO)
Grant date
01/15/2026
Name
Marcus Webb
Form of option
NSO
Shares
25,000
Price/Share
$0.42
Document
Option Agreement (NSO)
Grant date
02/03/2026

ISO vs. NSO

ISO, NSO, So What?

  • TLDR: Use ISOs for US employees, NSO for everyone else.
  • When we say "employee" we mean the people who you give a W2.
  • You'll generally give options to individuals only, not entities. Other instruments like warrants are more common for entities.
  • 1099s, advisors, and international grantees should use NSOs or NQSOs (non-qualified stock options); they don't get tax treatment as preferential as ISOs.
  • Your cap table should indicate whether each grantee is an ISO or an NSO.

Options

Name
Priya Raman
Shares
40,000
Price/Share
$0.42
Vesting
Exercised10,000 shares

Common Stock

Name
Jordan Lee
Shares
5,000,000
Price/Share
$0.0001
Name
Priya Raman
Shares
10,000
Price/Share
$0.42
Document
Option Exercise
Date
03/15/2026

Exercising options

They actually want to buy those options

  • TLDR: Exercising an option means buying stock at the option exercise price, even if the company has increased in value.
  • Expect your plan to allow vesting only so long as the optionee is providing services to your company.
  • When a service provider stops providing services, they stop vesting and enter their "exercise window".
  • In most cases, the exercise window lasts 90 days after termination.
  • If the optionee exercises, they become a stockholder; the shares reserved for them under the plan can't go to anyone else.

Vesting

  • Partly vested

    30,000 / 48,000

  • Pre-cliff

    Pre-Cliff (5/12mo)

  • After leaving the company

    30 days to exercise30,000 exercisable

  • Fully vested

    Fully Vested

Vesting

How Vesting Makes the Cap Table Go Round

  • TLDR: Vesting is a mechanism for option (or restricted stock) shares to become available to the grantee gradually.
  • Expect a cliff of about 1 year and a total vesting period of 4-5 years in standard issuances.
  • Vesting can get MUCH more complicated than simple time-based vesting.
  • Unvested shares can't be exercised, so can't yet become stock for the holder; vested shares can be exercised (purchased) anytime within the exercise window, including while still providing services.

Convertible Investments

$2.0M

raised

  • SAFEs$1.2M
  • Convertible Notes$500K
  • Warrants$300K

Convertibles

Convert into what, exactly?

  • TLDR: Certain equity instruments are simple to sign, as long as your Board approves. But how they become stock changes a lot based on the circumstances that come next.
  • SAFEs are contracts that "prepay" for a potential conversion into equity when a later triggering event occurs.
  • Convertible Notes are promissory notes that convert into equity when a later triggering event occurs.
  • In most cases, conversion happens on an equity investment or exit transaction.

Equity Decisions Can Be Tricky

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