Question 1

What is a cap table?

Accepted Answer

A **capitalisation table** records who owns what proportion of a company — every shareholder, every class of share, every option and everything that could become a share.

**What it contains:**

**Every shareholder** and the number and class of shares held.

**Share classes** and their rights — ordinary, preference, founder shares, non-voting — which matter enormously, because ownership percentage says nothing about rights.

**Options and warrants**, granted and reserved.

**Convertible instruments** not yet converted.

**Percentages** on both an **issued** and a **fully diluted** basis.

**Why fully diluted is the number that counts.** Issued share percentage flatters founders by excluding the option pool and anything convertible. Investors negotiate on fully diluted figures, and a founder reasoning from the issued figure will consistently overestimate their position.

**Why it must be accurate from the start.** A messy cap table is one of the most common reasons a funding round or acquisition stalls, and the problems are almost always historical:

**Shares promised in conversation** and never documented.

**A founder who left** still holding a large stake, with no vesting to claw it back — the single most damaging cap table defect, and one that can make a company uninvestable.

**Too many small shareholders** from early informal investment, making every subsequent decision requiring shareholder consent slow.

**Missing paperwork** — share certificates, board minutes, option grant documents — which surfaces in due diligence and delays everything while it is reconstructed.

**Options granted without a scheme**, or with unclear terms.

**What good practice looks like:** keep it in one authoritative place rather than several spreadsheets; **reconcile to the statutory register of members and Companies House filings**, since the legal record is what counts; document every issue and transfer at the time; use **vesting with a cliff** for founders as well as employees; and model prospective rounds before agreeing terms.

**Dedicated cap table software** exists and is worth it beyond a handful of shareholders, largely because it enforces consistency.

General information, not legal or financial advice.

Question 2

What is a liquidation preference?

Accepted Answer

The right of certain shareholders — almost always investors — to be paid first when a company is sold or wound up, before ordinary shareholders receive anything. It is frequently the single most

Question 3

What is equity dilution?

Accepted Answer

Your percentage of a company falling because new shares were issued — not because anyone took shares from you. Understanding that distinction is the whole subject. How it happens. A company issues

Question 4

What is due diligence, and what do investors actually look at?

Accepted Answer

The verification process between agreeing terms and money arriving — where an investor checks that what they were told is true, and where deals most often slow down or collapse. Why it exists. A term

Question 5

What actually matters in a term sheet?

Accepted Answer

Far less than the valuation, and far more than founders expect. A term sheet is mostly non-binding, but it sets the terms everything else follows from, and the economic and control clauses matter

Question 6

What is vesting, and what is a cliff?

Accepted Answer

Vesting means equity is earned over time rather than owned outright from day one. A cliff is an initial period during which nothing vests at all. The standard arrangement. Four-year vesting with a

Question 7

How does inventory tie up cash, and what does that cost you?

Accepted Answer

Stock is cash converted into a form you cannot spend, and the cost of holding it is consistently larger than businesses estimate — commonly a fifth to a third of the stock's value per year once every

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