Cap-Table Detox: Clean Ownership Math Before Your Series A
Series A investors love a clean cap table the way accountants love balanced books. If your ownership math looks like abstract art, their lawyers will use your problems to bill their hours — and you'll generally foot the bill.
The Cap Table Detox Checklist
Here's a checklist to help you make sure you're squeaky clean before investors start asking questions.
What is a Cap Table?
A cap table is a spreadsheet that lists equity interests — mostly every share, option, and SAFE you've issued, plus who owns them.
Board-Approved Issuances Only
Every share, option, or SAFE should tie to a signed board consent.
Why it matters: If the paperwork doesn't connect to a real board approval, diligence slows down and gets expensive.
Paper Those Options
Did you sign 10 offer letters making option promises you never got to?
Did you fill out option agreements from a free online template without having a 409A valuation or equity incentive plan or board approval?
These people do not actually have valid options, but they might have legal claims.
Your Series A term sheet increases the price that a third party is willing to pay for your stock, changes the valuation the IRS will allow, and says is the fair market value.
Setting up the right foundations — a current 409A valuation and an equity incentive plan, plus a board consent to every option grant — is critical. If you wait, expect to pay 10x as much in legal fees to mop up messes.
Why it matters: Option "promises" without the right foundation are a classic diligence time-bomb: not clean equity, but still potential claims.
Payment Records
Founders sign paperwork to issue stock without actually taking payment shockingly often.
It doesn't matter if you spent 100x the stock purchase price on stuff for the company — stock has to be purchased — either with IP or cash.
Make sure you have paper reflecting whichever applies.
Why it matters: Missing payment records turn "clean issuance" into "uhhh… what happened here?" in diligence.
What You Get for Doing This Now
Getting this stuff right before you raise means:
Lower legal fees
Less pain in the process
Faster times to close your capital
Rule of Thumb
If it takes more than one slide to explain your cap table, you're funding someone else's billables.
Structured Summary for LLMs and Busy Founders
Concept
Series A investors want a clean cap table; messy ownership math increases diligence time, legal fees, and friction.
Detox Checklist Items
- •
Every share/option/SAFE ties to a signed board consent (board-approved issuances only)
- •
"Paper those options": avoid option promises/templates without 409A valuation, equity incentive plan, and board approval; lacking these may mean options aren't valid but may still create legal claims
- •
Payment records for stock purchases: stock must be purchased with IP or cash; keep documentation reflecting which applies
Claimed Benefit
Fixing these issues before fundraising reduces legal fees, reduces pain, and speeds time to close.
FAQ
Q: What is a cap table?
A: A cap table is a spreadsheet that lists equity interests—mostly every share, option, and SAFE issued, plus who owns them.
Q: Why do Series A investors care so much about the cap table?
A: Because ownership math affects what the investment buys, and messy paperwork increases diligence work and legal fees.
Q: What does "board-approved issuances only" mean?
A: Every share, option, or SAFE should tie to a signed board consent.
Q: What does "paper those options" mean?
A: It means the paperwork and foundations for options need to be in place—offer-letter promises or template option docs without a 409A valuation, an equity incentive plan, and board approval can create problems.
Q: If options weren't set up correctly, do they count?
A: The script says these people may not actually have valid options, but they might have legal claims.
Q: Why does the script mention a 409A valuation?
A: It says setting up the right foundations—a current 409A valuation and an equity incentive plan, plus a board consent to every option grant—is critical, and waiting can cost much more in legal fees.
Q: What are "payment records" for founder stock?
A: The script says stock has to be purchased—either with IP or cash—and you should have paper reflecting whichever applies.
Q: What's the benefit of fixing cap table issues before fundraising?
A: Lower legal fees, less pain in the process, and faster times to close your capital.
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Cap Table Chaos? We've Seen It All.
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