Is Your Startup's Cap Table Ready for Funding?

Anne Veerpalu
Aug 4
2 min read

Updated: Aug 5

A clean, strategic cap table is crucial for startup fundraising. Early missteps—such as over-dilution, poor equity planning, or legacy shareholders with no ongoing contribution—can make investors walk away. This guide outlines what makes a cap table attractive to investors and how founders can protect long-term control.

🧩 1. Founder Ownership: Maintain Control Early

Founders should hold a majority of the equity in the initial stages. This keeps motivation high and ensures alignment with long-term value creation. If too much equity is allocated early (especially to non-active co-founders or early angels), it becomes “dead equity” and a red flag for future investors.

Best practice:

Avoid having ex-team members with large inactive stakes.
Keep active founders above 10% individually.
Ensure equity is held by contributors who are driving the company forward.

💼 2. Investor Terms: Be Careful What You Give Away

It's not just how much equity you give—it's on what terms.

Avoid over-dilution in pre-seed (aim for 10–15%) and seed (max 20%) rounds.
Some early investors push for excessive control or high equity stakes—this can hinder follow-on funding.
Watch out for "preferred shares", "liquidation preferences", or veto rights that make the startup unattractive to future investors.

Investors know that a healthy founder stake ensures long-term commitment. Be cautious of clauses that may lock you in or scare others off.

🎯 3. Stock Options: Plan for a Strong Team

A structured employee stock option pool (ESOP) is a signal to investors that you’re building a team-oriented culture.

Reserve at least 10% for options before or during your seed round.
Make sure this is visible on the cap table early, not squeezed in later.

It’s easier to attract and retain talent when they see equity upside—and easier to close funding when your cap table shows future readiness.

🔄 4. SAFEs and Convertible Notes: Don’t Let Them Creep

While SAFEs and convertibles are useful for raising early capital quickly, they can cause complexity if overused or not tracked properly.

Keep a real-time view of your fully diluted ownership structure.
Convert early if you can; prolonged delay can lead to confusion or unexpected dilution at future priced rounds.

Having too many open instruments can make valuation and control projections hard for new investors.

⏳ 5. Vesting: Align Equity with Long-Term Commitment

Founders and early employees should not be fully vested on day one.

Use a reverse vesting schedule (typically over 3–4 years) to align equity ownership with contribution over time.
If someone leaves early, their unvested shares return to the company.

Investors will expect this—it helps prevent misaligned incentives and ensures equity is held by people still building the company.