The single source of truth for who owns what
A capitalization table (cap table) lists every shareholder in a company and their percentage ownership. Everything from Lesson 14 onward, SAFEs, priced rounds, dilution, liquidation preferences, is really just different ways of describing how the cap table changes over time.
A first cap table
Worked example: two co-founders start a company and set aside an option pool for future hires before raising any outside money.
| Holder | Shares | Ownership % |
|---|---|---|
| Founder A | 4,500,000 | 45% |
| Founder B | 4,500,000 | 45% |
| ESOP (employee option pool, unallocated) | 1,000,000 | 10% |
| Total | 10,000,000 | 100% |
The ESOP pool
The ESOP (employee stock option pool) is shares set aside, before or during a round, to compensate future hires with equity. It's standard practice, and standard practice too, is that the pool is usually sized before a new investor's money comes in and dilutes existing shareholders alongside it, meaning founders, not new investors, absorb most of the ESOP's dilution cost. A larger requested pool is one of the more common, and more overlooked, ways a term sheet quietly shifts economics.
What changes at each round
Every time new shares are issued, whether to a new investor or to top up the ESOP pool, existing holders own a smaller percentage of a (hopefully) more valuable whole. Lesson 17 walks a full cap table through four rounds; this lesson is just the vocabulary needed to read one.
Checkpoint
- Cap table: the record of who owns what percentage of a company.
- ESOP pool: shares reserved for future hires, usually diluting founders more than new investors.
- Fully diluted: ownership as if every option and convertible instrument had already converted.
If anything here still feels unclear, ask before moving to Lesson 14.