Cap Table (Capitalisation Table)

The reduction in existing shareholders' ownership percentage when a company issues new shares, typically during a fundraising round. Dilution is an expected part of growth financing, but founders and early investors monitor it closely to protect their economic interest.

A legally binding contract between a company's shareholders that governs their rights, obligations, and the rules for key decisions including share transfers, board composition, dividend policy, and exit mechanisms. Essential governance infrastructure for investor-backed companies.

The planned method by which founders or investors intend to realise the value of their investment. Common exit routes include trade sale (acquisition), IPO, secondary sale, or management buyout.

A hybrid form of capital that combines elements of debt and equity, typically structured as subordinated debt with equity warrants or conversion features. Mezzanine financing is often used in leveraged buyouts, growth capital, and recapitalisations, and sits between senior debt and equity in the capital structure.

A financing instrument developed by Y Combinator that provides investors with the right to receive equity at a future priced round, subject to a valuation cap and/or discount. SAFEs are simpler than convertible notes, carry no interest, and have no maturity date.

The percentage ownership interest a shareholder holds in a company. Equity stakes determine voting rights, dividend entitlements, and the share of proceeds received in a sale or liquidation event.

The total value of a business including both equity and debt, minus cash. Calculated as market capitalisation plus total debt minus cash and equivalents.

Contractual mechanisms that protect existing investors from the dilutive effects of a subsequent financing round at a lower valuation than the round in which they invested. Common forms include full ratchet anti-dilution (which adjusts the conversion price to the new lower price) and weighted average anti-dilution (which adjusts based on the relative size of the new round).

How does equity dilution work across funding rounds?

Equity dilution occurs when new shares are issued in a funding round, reducing existing shareholders' ownership percentages — though not necessarily the value of their holdings if the company's valuation increases.

How should founders structure and maintain their cap table?

A well-structured cap table tracks all equity ownership, options, convertible instruments, and vesting schedules on a fully diluted basis — founders should maintain it from day one using dedicated software.

What is the typical equity split between co-founders of a startup?

There is no single 'correct' split — common approaches include equal splits for equal commitment, or weighted splits based on idea origination, capital contribution, full-time commitment, and domain expertise, always with vesting.