What is a capitalization table (cap table) and why is it important in financing rounds?

• A. A ledger showing ownership, options, and dilution across various securities; important for equity distribution and investor transparency.
• B. A document listing only the founder's equity stake.
• C. A financial statement detailing revenue and expenses for tax purposes.
• D. A roadmap for product development milestones.

Answer: (A)

A capitalization table shows who owns what in a company, listing every equity holder (founders, employees with stock options, investors) and every security that creates ownership (common stock, preferred stock, options, warrants, convertible notes), along with how those ownership percentages change when new shares are issued or options are exercised. This gives a clear picture of dilution and how much control or upside each party has as the company grows.

It's crucial in financing rounds because it reveals the pre-money and post-money ownership stakes, how much of the company the new investors will own, how much the option pool will dilute existing holders, and how different securities convert or convert at closing. Having an up-to-date cap table helps founders, investors, and employees understand the consequences of each funding decision, negotiate terms, and maintain transparency about equity distribution.

Other options describe different documents or purposes—one focuses only on founders, another on revenue and expenses, and another on product milestones—so they don’t capture the ownership, dilution, and security details that a cap table provides.