Cap Table

The capitalization table models economic ownership, governance rights, and liquidation economics. Accurately managing a cap table requires modeling fully-diluted share counts, calculating post-money vs pre-money SAFEs, configuring employee equity option pools, and structuring preferred share liquidation waterfalls.

1. Share Counts: Issued vs. Fully-Diluted

Distinguish between voting shares and total diluted shares:

• Issued & Outstanding: Common stock held by founders, early employees, and exercised shares.
• Fully-Diluted Shares (FD): $$\text{Fully-Diluted Shares} = \text{Issued Common} + \text{Unexercised Options Granted} + \text{Unallocated Option Pool} + \text{Convertible Securities}$$ Rule: Always use the fully-diluted share count when calculating per-share price and percentage ownership.

2. SAFE Conversion Mechanics (Valuation Cap & Discount)

Simple Agreements for Future Equity (SAFEs) convert into preferred stock upon a qualified priced equity financing:

• Pre-Money SAFE Conversion Price: $$\text{Conversion Price} = \min\left( \frac{\text{Valuation Cap}}{\text{Pre-Money Fully-Diluted Shares}}, \text{Priced Round Price} \times (1 - \text{Discount Rate}) \right)$$
• Post-Money SAFE Ownership (Y Combinator Standard): $$\text{Investor Ownership %} = \frac{\text{Investment Amount}}{\text{Post-Money Valuation Cap}}$$ Note: Post-money SAFEs dilute existing common shareholders with mathematical certainty, but do not dilute other post-money SAFE holders until the priced round.