When should we clean up the cap table?

Before you start fundraising, not during. Reserve 4-6 weeks for cleanup: reconcile against legal records, chase down missing 83(b) proof, paper any verbal equity promises, and refresh the option pool if needed. Investors will run their own audit during diligence — clean beats fast.

Should we do a stock repurchase from a departed co-founder?

If they left before their equity vested, unvested shares should have been repurchased at cost automatically per the stock purchase agreement. If they hold vested equity, options include buyback (needs cash and their agreement), keeping them on the cap table (creates dead equity), or negotiating a small buyback with future upside. Do this before fundraising, not after.

How often should we refresh the option pool?

Before every priced round (investors will require it if the pool is under 10-15% of post-money). Between rounds, top up when the pool drops below one year's projected hiring needs. Refreshes dilute existing holders, so time them to coincide with rounds when possible.

Cap Table Management: Tools, Rules, and Founder Mistakes

A messy cap table can kill a fundraise. Here's how to keep it clean from day one, which tools to use, and the mistakes founders make that scare off investors.

Cap Table Management: Tools, Cleanliness, and Common Mistakes

Your cap table is the single source of truth on who owns what. Investors read it before term sheets, acquirers read it before LOIs, and lawyers read it before every closing. A messy cap table — unrecorded SAFEs, missing 83(b) filings, undocumented promises — turns a two-week fundraise into a two-month cleanup exercise. Keep it clean from day one.

Use a real tool from day one

Carta, Pulley, and AngelList Stack are the modern standards. Cost: $2K-8K/year at seed stage — trivial compared to the legal fees a spreadsheet cap table creates during a fundraise. Spreadsheets miss vesting calculations, SAFE conversions, and option pool refreshes. Move to a real tool by the seed round at the latest.

Record every SAFE, note, and side letter

Every SAFE gets logged with cap, discount, MFN status, and pro-rata rights the moment it's signed. Same for convertible notes (interest rate, maturity, conversion terms) and any side letters (information rights, board observer seats, MFN). Investors will discover undocumented instruments during diligence — better they see them cleanly in the cap table than as surprises.

83(b) elections and vesting

Every founder and employee receiving restricted stock must file an 83(b) election with the IRS within 30 days of grant. Missing this creates catastrophic tax liability at vesting. Founders should have 4-year vesting with 1-year cliff from company formation — investors expect it, and it protects co-founders from each other.

Common mistakes that scare investors

Dead equity (former co-founder holding 25% with no vesting acceleration triggered), unissued promised equity ('I told them 2% but never papered it'), missing option pool room (need 10-15% available for hiring), and complex layered SAFEs with mismatched caps that make dilution modeling painful. Any of these will slow a term sheet or reduce the offered valuation.

Frequently asked questions

When should we clean up the cap table?: Before you start fundraising, not during. Reserve 4-6 weeks for cleanup: reconcile against legal records, chase down missing 83(b) proof, paper any verbal equity promises, and refresh the option pool if needed. Investors will run their own audit during diligence — clean beats fast.
Should we do a stock repurchase from a departed co-founder?: If they left before their equity vested, unvested shares should have been repurchased at cost automatically per the stock purchase agreement. If they hold vested equity, options include buyback (needs cash and their agreement), keeping them on the cap table (creates dead equity), or negotiating a small buyback with future upside. Do this before fundraising, not after.
How often should we refresh the option pool?: Before every priced round (investors will require it if the pool is under 10-15% of post-money). Between rounds, top up when the pool drops below one year's projected hiring needs. Refreshes dilute existing holders, so time them to coincide with rounds when possible.

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