How do you avoid common cap table mistakes that can hurt your startup's future?

1 Know your dilution

One of the biggest challenges of managing a cap table is accounting for dilution. Dilution is the reduction in your ownership percentage as you issue more shares to investors, employees, or other stakeholders. Dilution is inevitable as you grow your startup, but you need to understand how it affects your stake and your valuation. You can use cap table software to model different scenarios of dilution and see how they impact your share price, your investor returns, and your exit options. This way, you can make informed decisions about how much equity to raise, at what valuation, and from whom.

2 Keep it simple and accurate

Another common mistake with cap tables is making them too complex or inaccurate. Some founders try to include too many details, such as vesting schedules, convertible notes, warrants, or options, that can make the cap table hard to read and update. Others neglect to update their cap table regularly or forget to record important transactions, such as stock transfers, splits, or cancellations. These errors can lead to disputes, legal issues, or missed opportunities down the road. You can avoid these problems by using cap table software that simplifies and automates your cap table management. You can track your equity transactions, generate reports, and share your cap table with your investors and advisors in real time.