Key points
- Investor counsel will rebuild your cap table from signed documents. Every line on your spreadsheet needs a document behind it.
- The usual problems: unsigned or missing stock purchase agreements, option grants without board approval, SAFEs and notes with unclear terms, and departed founders with unvested shares.
- Model how SAFEs and notes convert at the new price before you negotiate valuation, not after.
- Missing approvals can often be fixed by ratification under the corporate statute, but it takes time and a lawyer.
- Put the reconciled cap table and every source document in one data room folder.
A cap table is the record of who owns what in a company: common and preferred shares, options, warrants, SAFEs and convertible notes. Cap table cleanup means making that record match the signed legal documents exactly, before an investor’s lawyers find the gaps for you.
It is unglamorous work. It is also the part of diligence most likely to delay a closing, because a missing signature cannot be fixed by a better spreadsheet.
What investor counsel actually checks
When a lead investor’s law firm starts confirmatory diligence, one of the first tasks is to build its own cap table from your documents and compare it with yours. Any difference becomes a question, and every question takes time.
| Instrument | Documents counsel expects | Common gap |
|---|---|---|
| Founder common stock | Stock purchase agreement, vesting terms, 83(b) election copy | 83(b) election never filed or no proof of filing |
| Employee options | Equity plan, board approval, grant agreement, 409A at grant | Grants promised by email but never approved |
| Preferred stock | Charter, purchase agreement, investor rights agreement | Charter amendments not filed with the state |
| SAFEs | Signed SAFE with cap, discount and MFN terms | Different versions with different terms, side letters |
| Convertible notes | Note purchase agreement, signed notes | Maturity passed with no extension signed |
| Warrants | Warrant agreement, board approval | Warrants issued to a lender or adviser and forgotten |
| Advisor equity | Advisor agreement, board approval, grant | Handshake promises with no paperwork |
Where cap table problems usually come from
Step by step: reconcile the cap table
- Gather every equity documentCollect stock purchase agreements, option grants, SAFEs, notes, warrants, board and stockholder consents, and the charter with every amendment.
- Build the ledger from documentsRebuild the cap table line by line from the documents, not from the old spreadsheet. Note the document and date for each line.
- Compare with your working versionList every difference: share counts, prices, vesting dates, missing holders.
- Fix approvalsWhere a grant or issuance was never approved, ask counsel about ratification. In Delaware this is usually done under sections 204 or 205 of the General Corporation Law.
- Chase signaturesGet missing agreements signed, including from former employees and advisers where needed.
- Model conversionShow how every SAFE and note converts at a range of round prices, and what the option pool increase does to founder ownership.
- Load the data roomPut the reconciled cap table, the pro forma and every source document in one folder, indexed by holder.
SAFEs and notes: model conversion before pricing
SAFEs and convertible notes are the most common source of surprise in a priced round. A founder who raised on several post-money SAFEs at different caps can find that conversion takes more ownership than expected, especially once the new option pool is counted in the pre-money.
Run the numbers before you negotiate. The calculator below shows how a single SAFE converts; repeat it for each instrument, or use the cap table calculator to see them together.
Post-money SAFEs fix the investor's ownership at the cap, so later SAFEs dilute founders, not earlier SAFE holders.
| Item | Pre-money SAFE | Post-money SAFE |
|---|---|---|
| Ownership at conversion | Depends on everything else that converts | Fixed at investment divided by post-money cap |
| Who absorbs later SAFEs | Shared across holders | Founders and existing common |
| Easy to model | Harder, circular | Easier, one division per SAFE |
| Common today | Older rounds | Standard Y Combinator form since 2018 |
Option grants and the 409A problem
Options must be granted at or above fair market value to avoid tax problems for employees under Section 409A of the Internal Revenue Code. Most startups use an independent 409A valuation, which gives a safe harbor presumption for twelve months unless something material changes. Counsel will match each grant date to a valuation in force on that date.
Grants made without a current valuation, or promised in offer letters but approved months later at a higher value, need careful handling. Our 409A guide covers what investors look for.
Enter the pool the lead is asking for and compare it with your hiring plan.
Departed founders and employees
When a co-founder or early employee leaves, unvested shares should be repurchased or forfeited under their agreement. If nobody did the paperwork, the cap table may still show shares that the company had the right to take back. Counsel will ask whether the repurchase right was exercised and, if not, whether it lapsed.
Fix this before the raise. The longer it waits, the harder the conversation with the person who left.
What the cap table folder should contain
A pre-raise cap table checklist
- Every holder on the cap table has a signed document behind their line.
- Every option grant has a board approval dated on or before the grant date.
- A 409A valuation covers every grant date.
- Founder 83(b) elections are on file with proof of timely filing.
- All SAFEs and notes are collected, with any side letters or MFN rights noted.
- No expired notes without a signed extension.
- Departed holders' unvested shares were repurchased or forfeited as their agreements require.
- The charter on file with the state matches the share classes you think you have.
Once the cap table is clean, the rest of the room comes together quickly. Our ranking of the best data rooms for investors compares platforms on view-only control and activity logs, which matter most for this folder.
How long does cap table cleanup take?
A few days if the documents exist and only need sorting. Several weeks if approvals need ratifying or former employees need to sign paperwork.
Do I need a lawyer to clean up my cap table?
For reconciling numbers, a careful founder or finance lead can start. For missing approvals, ratification and repurchase issues, use startup counsel.
Should I use cap table software?
It helps once you have more than a handful of holders, but software only reflects what you enter. The documents still need to match.
What is a pro forma cap table?
A version showing ownership after the new round closes: new investor shares, converted SAFEs and notes, and any option pool increase.
Can investors see individual employee option grants?
Counsel usually needs the full ledger. Many founders share a summary early and the named ledger only after a term sheet.
What happens if the cap table is wrong at closing?
Shares may be issued on wrong numbers, and fixing it later usually requires consents from investors. Clean it up first.
