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Capitalization table
View on Wikipediafrom Wikipedia
A capitalization table or cap table is a table providing an analysis of a company's percentages of ownership, equity dilution, and value of equity in each round of investment by founders, investors, and other owners.[1]
Overview
[edit]In its simplest form, a capitalization table, or "cap table" as it is often abbreviated, is a ledger that tracks the equity ownership of a company's shareholders: that is, how its capitalization is composed. However, the term can refer to the way in which any company keeps track of all of the relevant information related to all of its stakeholders (including debt, convertible debt, option, warrant, and derivatives holders) and their claims on the company.[2] Public companies primarily use transfer agents and a wide array of technologies and systems to keep track of their stakeholder information and therefore it is uncommon for public companies to refer to their stakeholder records and accounting as a "cap table". Private companies typically have a much simpler capital structure and more limited stakeholder accounting requirements. In the earliest stages of their development, private companies may track their shareholders in a simple document or spreadsheet. Cap tables are widely used by entrepreneurs, venture capitalists, and investment bankers to model and to analyze events such as ownership dilution, issuing employee stock options, or issuing new securities. After several rounds of financing, a cap table can become highly complex.
Most cap tables are managed in spreadsheets, which may lack scalability—often, they are time-consuming to maintain and update and prone to human error. In recent years,[when?] cap table automation software has become popular with growing businesses with increasingly complex equity structures. Examples of such platforms include Carta, Pulley, Ledgy, and Vimtara.[3][citation needed]
Relationship to company shares
[edit]In the past, companies would issue shares on paper stock certificates and then use the cap table as an accounting representation and summary of share ownership. Public companies have increasingly eliminated all paper stock certificates in a process called "dematerialization" to simplify and decrease transactions costs. Most global regulators have made and encouraged financial system changes to encourage dematerialization.
In the US and many other countries, companies can use their cap table as the only system of record for recording stock ownership. US state laws support a concept of uncertificated, or book entry shares where the cap table is the formal legal record of equity ownership.[4]
Waterfall analysis
[edit]As a cap table becomes more complex, the ownership percentages indicated on the cap table can diverge from actual percentage of proceeds distributed to shareholders upon a liquidity event. Some industry commentators have called the difference between actual ownership percentage on the cap table and a shareholder's percentage of exit proceeds "accounting ownership" (actual ownership percentage on the cap table) vs. "economic ownership" (percentage of proceeds available to equity).[5]
This situation leads to the concept of a "waterfall" or "waterfall analysis." A waterfall analysis details the exact payouts to every shareholder on a company's cap table based on a specific amount of proceeds available to equity in a particular liquidity scenario. Since a company often does not know if, when, or how it will achieve a liquidity event, waterfall analysis typically covers a range of liquidity assumptions. Liquidation preference charts extend the analysis, showing the economic outcome available to investors at all valuations across a range of outcomes, rather than focusing on a specific point or a discrete set of points.
References
[edit]- ^ "Cap Tables". Carta. Retrieved 27 March 2025.
- ^ "Cap Tables". Carta. Retrieved 27 March 2025.
- ^ "Vimtara – Equity and Cap Table Management Platform". Vimtara. Retrieved 4 October 2025.
- ^ Conner, Cheryl (25 September 2012). "Why Your Equity Could be Worth Less Than You Think (Or Possibly Nothing at All)". forbes.com. Retrieved 21 October 2015.
External links
[edit]- Capography Helps Entrepreneurs Manage Their Cap Table Without The Excel Headache
- Sample capitalization table on a spreadsheet
- Common cap table mistakes to avoid
- Cap table of Everpix
Capitalization table
View on Grokipediafrom Grokipedia
A capitalization table, often abbreviated as cap table, is a spreadsheet or document that outlines a company's equity ownership structure, detailing the shareholders, the types of securities they hold (such as common stock, preferred stock, options, warrants, and convertible instruments), the number of shares or units owned, and the corresponding ownership percentages.[1] It serves as the official record of ownership and is primarily used by private companies, especially startups, to track equity distribution from inception through various growth stages.[2]
Key components of a cap table include lists of all equity holders—such as founders, employees, angel investors, and venture capitalists—alongside details on share prices, total market value, transaction history from funding rounds, and mechanisms like stock option pools or restricted stock units.[2] It also incorporates valuations, such as pre-money and post-money figures, as well as analyses of dilution effects from new issuances and exit scenarios through waterfall models that simulate payout distributions in liquidity events like acquisitions or initial public offerings (IPOs).[3] These elements enable precise modeling of ownership changes and financial implications over time.[1]
Cap tables are crucial for informed financial decision-making, including calculating market capitalization, preparing shareholder reports, and issuing new capital without unintended dilution.[1] They facilitate due diligence during fundraising by demonstrating transparency and professionalism to investors, help manage employee equity incentive plans, and ensure compliance with legal requirements for ownership tracking.[2] In practice, maintaining an accurate cap table is vital for startups navigating multiple funding rounds, as errors can lead to disputes or undervaluation during exits.[3]
This example highlights initial ownership post-seed funding, without accounting for future dilutions.[2]
Definition and Fundamentals
Definition
A capitalization table, often abbreviated as a cap table, is a spreadsheet or table that details a company's equity ownership capitalization by listing all shareholders, the number of shares they hold, their percentage ownership, and the value of their equity.[1][2] This document serves as the official record of ownership distribution among founders, investors, employees, and other stakeholders.[2][4] The core purpose of a cap table is to illustrate the effects of ownership dilution arising from events such as financing rounds, stock option grants, and other equity issuances.[1][2] By tracking these changes, it enables companies—particularly startups—to maintain transparency in equity structure during growth phases, funding negotiations, and due diligence processes.[2][5] Basic structure elements of a cap table typically include columns for shareholder names, share types (such as common or preferred stock), total shares outstanding, ownership percentages, and valuations (including pre-money and post-money figures).[2][1] These components provide a snapshot of the company's equity breakdown, often organized by security type along one axis and individual or group holders along the other.[1][4] For instance, a simple cap table for a startup with two founders and one initial investor might appear as follows, assuming 10 million total shares outstanding:| Shareholder | Share Type | Total Shares | Ownership % |
|---|---|---|---|
| Founder A | Common Stock | 4,000,000 | 40% |
| Founder B | Common Stock | 3,000,000 | 30% |
| Investor X | Preferred Stock | 3,000,000 | 30% |
| Total | 10,000,000 | 100% |
Historical Development
The capitalization table, commonly known as the cap table, originated from traditional stock ledgers that corporations have maintained since the 19th century to record share issuances, transfers, and ownership details.[6] These ledgers served as the foundational legal and financial records for tracking equity in early corporate structures, particularly as joint-stock companies proliferated during the Industrial Revolution. By the early 20th century, with the expansion of public stock markets and the establishment of regulatory oversight—such as the U.S. Securities Act of 1933 and the Securities Exchange Act of 1934—the need for more analytical ownership breakdowns grew, transforming basic ledgers into structured tables that detailed equity dilution and value for disclosure purposes.[7] This evolution aligned with the rise of venture capital in the post-World War II era, starting with the formation of the first modern VC firm, American Research and Development Corporation, in 1946, which required precise tracking of private company stakes amid emerging investment practices.[8] The cap table gained prominence in the 1970s and 1980s during the Silicon Valley technology boom, where rapid funding rounds and equity issuances in startups like those in semiconductors and personal computing demanded dynamic tools beyond simple ledgers.[9] Venture capital firms, maturing in the region during this period, adopted cap tables as standard instruments to model ownership percentages, investor rights, and potential dilutions, fueling the ecosystem's high-growth model.[10] By the 1990s, the widespread availability of spreadsheet software, notably Microsoft Excel introduced in 1985, enabled standardization of cap tables as digital documents, allowing for easier calculations of scenarios like funding rounds and exits in an increasingly complex startup landscape.[11] Regulatory shifts further shaped cap table development in the 21st century. The Jumpstart Our Business Startups (JOBS) Act of 2012 in the U.S. lifted restrictions on general solicitation for private placements and introduced equity crowdfunding provisions, enabling companies to attract larger numbers of investors and thereby increasing cap table complexity through fragmented ownership structures.[12][13] This prompted a transition from manual or spreadsheet-based maintenance to automated software platforms; for instance, Carta, founded in 2012, pioneered dedicated cap table management tools that provided real-time updates and error reduction for high-velocity equity events in scaling companies.[14] As of 2025, while Carta remains prominent, the market has expanded with additional platforms like Pulley and Ledgy, incorporating advanced features such as AI-assisted dilution modeling and regulatory compliance tools.[15][16] These digital solutions continue to dominate, minimizing risks in scenarios with hundreds of stakeholders.[17]Key Components
Equity Ownership Breakdown
The equity ownership breakdown in a capitalization table identifies the key stakeholders holding equity stakes in the company, primarily founders, employees, investors, and other parties such as advisors or service providers. Founders typically receive common stock to reflect their initial contributions and control. Employees, including executives and key personnel, are often granted equity through stock options, restricted stock units (RSUs), or restricted stock awards (RSAs) as part of compensation packages to incentivize performance and retention. Investors encompass early-stage angel investors providing seed capital and later-stage venture capitalists who acquire equity in funding rounds, alongside family, friends, or other early backers.[18][2][1] Ownership percentages for each holder are calculated to quantify their proportional interest, using the formula: ownership percentage = (number of shares held by the individual / total shares outstanding) × 100. This computation divides the shares attributed to a specific holder—whether fully owned or on a fully diluted basis—by the aggregate shares issued and outstanding, then multiplies by 100 to express the result as a percentage. For instance, if a founder holds 2 million shares out of 10 million total shares outstanding, their ownership is 20%. The fully diluted approach further incorporates potential shares from unexercised options, warrants, or convertible securities to provide a comprehensive view of diluted ownership.[2][1] Valuation integration assigns monetary values to these holdings by linking ownership percentages to the company's overall valuation, often on a fully diluted basis. The price per share is determined by dividing the company's valuation (pre-money or post-money) by the total fully diluted shares outstanding; each holder's stake is then valued as their shares multiplied by this price. For example, in a company valued at $20 million with 10 million fully diluted shares, the price per share is $2, so a 10% holder with 1 million shares has a $2 million equity value. This valuation context is essential for negotiations in funding rounds or liquidity events, reflecting the economic implications of ownership.[2][1] Handling vested versus unvested equity ensures the breakdown accurately tracks current versus contingent ownership, mitigating risks from early departures. Vesting schedules are predominantly time-based, with a standard four-year term featuring a one-year cliff—under which 25% of the grant vests after 12 months of service, followed by equal monthly vesting of the remainder over the next 36 months. Milestone-based vesting may apply for specific grants tied to performance goals, particularly for founders or advisors. Unvested portions remain subject to forfeiture upon termination, and the table separately lists vested shares as realized ownership while monitoring unvested grants to forecast future dilution impacts. This structure aligns long-term incentives across founders, employees, and early investors.[19][18][2]Share Classes and Instruments
A capitalization table includes various share classes and instruments that represent different forms of equity ownership and potential ownership in a company. Common stock constitutes the foundational equity class, typically issued to founders, early employees, and key personnel, granting basic voting rights and residual claims on assets after other obligations are met.[2][1] Unlike preferred shares, common stock does not carry preferential treatment in dividends or liquidations, making it the standard vehicle for aligning incentives with long-term company growth.[20] Preferred stock, often issued to investors during venture funding rounds, provides enhanced protections and rights to mitigate risk. These shares generally feature liquidation preferences, ensuring holders receive their investment back (often with a multiple, such as 1x) before common stockholders in an exit event, along with potential dividend rights and participation rights in proceeds.[2][1] Preferred stockholders also hold conversion rights, allowing them to convert into common stock on a one-to-one basis or as adjusted by the terms, typically to participate in voting or upon an IPO.[2] This class balances investor security with the company's need for capital, distinguishing it from common stock by prioritizing returns in downside scenarios.[21] Beyond traditional shares, cap tables track derivative instruments that can convert into equity, including stock options, warrants, convertible notes, and SAFEs. Stock options grant the right to purchase shares at a predetermined strike price and are categorized as Incentive Stock Options (ISOs) or Non-Qualified Stock Options (NSOs). ISOs are available exclusively to employees and offer favorable tax treatment, with no ordinary income tax at exercise if holding periods are met, though alternative minimum tax may apply; they are subject to a $100,000 fair market value limit per calendar year.[22][23] NSOs, extendable to employees, consultants, and advisors, trigger ordinary income tax on the spread between strike price and fair market value at exercise, with subsequent gains taxed as capital gains upon sale; they lack the ISO limits and provide companies with greater flexibility.[24][22] Warrants function similarly to options but are often issued to investors or lenders as sweeteners, providing the right to buy shares at a fixed price within a specified period, and are recorded on cap tables to reflect potential dilution.[1][25] Convertible notes and Simple Agreements for Future Equity (SAFEs) represent common pre-equity funding mechanisms tracked as placeholders on cap tables until conversion. Convertible notes are short-term debt instruments that accrue interest (typically 4-8%) and convert into preferred stock upon a qualified financing event, such as a priced equity round, with a maturity date requiring repayment if unconverted.[26] SAFEs, introduced by Y Combinator, are equity agreements without debt characteristics—no interest or maturity—designed to simplify early-stage investments by converting directly into preferred stock in a future round.[26] Both instruments influence ownership by embedding terms like valuation caps (a maximum company valuation for conversion pricing) and discount rates to reward early investors.[26][1] Conversion mechanics for these instruments typically activate during a triggering event, such as raising a minimum amount in a preferred stock round, transforming the investment into shares at a favorable price. The effective conversion price is the lower of the valuation cap-derived price or the discounted price from the new round's share price; for instance, a 20% discount rate reduces the conversion price to 80% of the price paid by new investors, enabling earlier backers to receive more shares for their investment.[27][26] This process, often including accrued interest for notes, directly impacts the cap table by issuing new shares and adjusting ownership percentages, while briefly serving as a trigger for broader dilution effects in the company's equity structure.[27]Dilution and Anti-Dilution Provisions
Dilution in the context of a capitalization table refers to the reduction in existing shareholders' stakes resulting from the issuance of new equity, which impacts both ownership percentages and economic value. Ownership dilution occurs when a shareholder's percentage of total shares decreases due to the addition of new shares, without any change in the number of shares they hold. This type of dilution is a direct consequence of fundraising rounds or employee stock option grants, where new shares are issued to investors or employees.[28] Economic dilution, on the other hand, arises when the value per share declines, often in down rounds where new shares are sold at a lower price than previous rounds, effectively transferring value from existing shareholders to new ones.[29][30] The impact of ownership dilution can be calculated using the formula for post-issuance ownership percentage: This formula quantifies the reduction in proportional ownership for any shareholder following a new issuance event.[31] To mitigate these effects, particularly economic dilution in down rounds, investors often negotiate anti-dilution provisions in preferred stock agreements. These provisions adjust the conversion terms of preferred shares into common shares to protect early investors' economic position. The two primary types are full ratchet and weighted average protections. Full ratchet anti-dilution is the most investor-friendly, as it retroactively adjusts the original conversion price of prior preferred shares to match the lowest price paid in any subsequent round, effectively granting additional shares without further investment.[32] This method ignores the size or terms of prior rounds, providing complete protection against value erosion but potentially discouraging future fundraising by heavily penalizing founders and later investors.[33] In contrast, weighted average anti-dilution offers a more balanced adjustment by recalculating the conversion price based on the relative impact of the new round. It comes in two variants: narrow-based, which considers only common shares outstanding plus new preferred shares, and broad-based, which includes a wider set of potentially dilutive securities like options and warrants for a less aggressive adjustment. The standard formula for the new conversion price under weighted average is: where is the original conversion price, is the number of shares outstanding before the new issuance, is the number of shares issuable at the original conversion price for the amount raised in the new round (, with the investment amount), and is the number of new shares issued in the dilutive round. Broad-based versions incorporate additional shares in , resulting in milder dilution protection compared to narrow-based.[34] For example, consider a down round scenario where an investor holds preferred stock with an original conversion price of $5 per share, and there are 1,000,000 shares outstanding () before the new round. The company raises $2,500,000 () by issuing 1,000,000 new shares () at $2.50 each, so . Using the weighted average formula: C_2 = 5 \times \frac{1,000,000 + 500,000}{1,000,000 + 1,000,000} = 5 \times \frac{1,500,000}{2,000,000} = 5 \times 0.75 = \$3.75 This adjustment lowers the conversion price to $3.75, allowing the investor to receive more common shares upon conversion (e.g., originally 200 shares for a $1,000 investment would become approximately 267 shares), partially offsetting the economic dilution from the lower round price.[34]Construction and Management
Building the Table
Creating a capitalization table, often referred to as a cap table, begins with the initial setup of gathering essential data on the company's equity structure. This includes compiling information on authorized shares, which represent the maximum number of shares the company is permitted to issue as per its charter, and issued shares, which are the shares actually distributed to shareholders. Key inputs such as equity ownership breakdowns—detailing founders, investors, and employees—serve as the foundation for this data collection. Tools for setup range from basic Excel spreadsheets, suitable for early-stage companies, to specialized software like Carta, which offers automation and scalability for tracking complex ownership.[1][2] The step-by-step process to build the table ensures chronological accuracy and comprehensive coverage of equity events. First, list all equity issuances in sequence, starting with founders' common shares (including vesting schedules), followed by investor contributions from funding rounds (noting share classes, prices, and preferences), and subsequent grants like advisor stock or employee options. This chronological ledger captures transactions such as stock issuances, conversions from instruments like SAFEs, and exercises of warrants.[2] Next, calculate the total outstanding shares by summing all issued shares and subtracting any held as treasury shares or repurchased by the company. Outstanding shares reflect the current equity in circulation, excluding unissued authorized shares. Then, compute ownership percentages by dividing each holder's shares by the total outstanding shares, and determine monetary values by multiplying shares by the current share price, often derived from recent valuations like 409A appraisals.[1][2] To account for potential future dilution, incorporate fully diluted shares, which include the total outstanding shares plus all potential shares from dilutive instruments such as the employee option pool (typically 10-20% of total shares, depending on the funding stage), warrants, convertible notes, and other securities. This provides a forward-looking view of ownership.[2] Handling specific scenarios during construction involves dedicated tracking for treasury shares, which are repurchased and held by the company, reducing the outstanding count until reissued; repurchases, often from departing employees or buybacks, require deducting shares and noting the transaction date and price; and employee stock plans, where option grants, vesting cliffs, and exercises are recorded to reflect potential ownership shifts without inflating current figures prematurely.[1][2] Best practices emphasize using scenario modeling within the cap table framework to simulate hypothetical funding rounds, forecasting dilution effects on existing holders and aiding strategic planning. Software like Carta facilitates this by allowing users to input variables such as new investment amounts and option pool refreshes to generate multiple "what-if" tables dynamically. Maintaining precision in these models relies on verifying all inputs against legal documents like stock ledgers and incorporation filings.[2][35]Updating and Maintaining Accuracy
Maintaining an accurate capitalization table is essential for startups and growing companies, as it ensures stakeholders have a reliable view of equity ownership amid evolving business events. Updates are triggered by key corporate actions that alter share distribution or ownership stakes, such as new funding rounds, which introduce fresh share issuances and investor entries, thereby diluting existing holdings.[36] Similarly, option grants and exercises directly impact the table by adding potential shares to the pool or converting them into outstanding equity, while employee departures often necessitate adjustments for share repurchases or vesting accelerations to reflect forfeited or returned equity.[2] Mergers and acquisitions represent another critical trigger, as they can fundamentally reshape ownership through stock swaps, consolidations, or new equity issuances.[37] To manage these updates effectively, companies employ a combination of automated and manual processes. Cap table management software, such as platforms offered by Carta or Eqvista, enables real-time tracking of equity events, automated calculations of ownership percentages, and scenario modeling to streamline maintenance without manual spreadsheets.[2] Complementing this, manual reconciliation involves cross-verifying the table against primary legal documents like stock ledgers, board resolutions, and grant agreements to catch discrepancies and ensure completeness.[38] These processes should be integrated into routine workflows, with updates performed promptly after each triggering event to prevent outdated information from misleading investors or complicating future transactions. Common pitfalls in cap table maintenance include double-counting shares during transfers or issuances, which inflates total equity, and overlooking vesting schedules, leading to inaccurate projections of fully diluted shares.[39] To address these, regular auditing is recommended, with startups typically conducting quarterly reviews to validate data integrity, often in collaboration with legal or accounting professionals.[38] Such audits help identify and correct errors early, preserving the table's reliability for strategic decisions like dilution modeling. Beyond operational accuracy, maintaining the cap table has significant compliance implications, particularly for tax purposes. For instance, issuing stock options requires alignment with Section 409A valuations, which determine the fair market value of common stock to avoid IRS penalties on deferred compensation.[40] An up-to-date cap table ensures these valuations reflect current equity structures, mitigating risks such as 20% additional taxes plus interest on non-compliant grants.[41] Failure to synchronize updates with tax requirements can expose companies to audits and financial liabilities, underscoring the need for diligent oversight.[42]Applications and Analysis
Role in Fundraising and Valuation
Prior to fundraising, a capitalization table serves as a critical tool for startups to demonstrate a clean and transparent equity structure to potential investors. It outlines founder ownership percentages, early employee equity grants, and the reservation of an option pool, typically set at 10-20% of the fully diluted shares to attract talent without immediate dilution to investors.[1][43] This pre-funding cap table helps build investor confidence by illustrating the company's ownership distribution and avoiding surprises related to hidden claims or complex structures that could complicate future rounds.[44] In the context of valuation during fundraising, the cap table is integral to determining pre-money and post-money valuations, which directly influence investment terms. For instance, if an investor commits $10 million for a 25% ownership stake, the post-money valuation is calculated as the investment amount divided by the ownership percentage, yielding $40 million; the pre-money valuation is then the post-money figure minus the investment, resulting in $30 million.[45] Post-money adjustments account for the new shares issued, updating the cap table to reflect dilution across existing shareholders while incorporating the investor's stake.[46] This process ensures that the cap table accurately captures the economic impact of the round on all parties. Cap tables also integrate key provisions from term sheets, such as pro-rata participation rights, which allow existing investors to invest additional capital in future rounds to maintain their proportional ownership and mitigate dilution.[47] These rights are modeled in the cap table by simulating subsequent financings, helping negotiate terms that protect investor influence without overly fragmenting control.[48] For illustration, consider a startup with 10 million fully diluted shares pre-round, where founders hold 60%, employees (via options) hold 20%, and early investors hold 20%. Raising $8 million at a $32 million pre-money valuation issues 2.5 million new shares (priced at $3.20 each), for a post-money valuation of $40 million. This dilutes existing ownership to 48% for founders, 16% for employees, and 16% for early investors, with the new Series A investor taking 20%. This updated cap table post-dilution provides stakeholders with a clear view of shifted equity, informing decisions on governance and future growth.Exit Scenarios and Waterfall Analysis
Exit scenarios for a company, as modeled in its capitalization table, primarily include an initial public offering (IPO), acquisition by another entity, or dissolution through liquidation. In these events, payouts follow a strict priority order to ensure orderly distribution of proceeds: secured debt and creditors are paid first, followed by preferred stockholders according to their liquidation preferences, and finally common stockholders receive any remaining amounts.[49][50] Waterfall analysis refers to the sequential distribution of exit proceeds through the company's capitalization structure, prioritizing investors with liquidation preferences—such as a 1x or 2x return on their investment—before any funds reach common shareholders. This method ensures preferred shareholders recover their capital (or a multiple thereof) in downside scenarios, providing downside protection while aligning incentives in liquidity events like acquisitions or IPOs.[51][52] The modeling process involves simulating exit scenarios by integrating the cap table with the terms of preferred stock agreements, typically using spreadsheet software to calculate distributions at various valuation levels. Key steps include determining total proceeds, applying liquidation preferences to preferred classes in their stacked order (e.g., pari passu or senior), and allocating residuals pro rata among eligible shareholders. A core formula for initial payouts is: Remaining proceeds after satisfying preferences are then: These are distributed based on ownership percentages, with options for preferred holders to convert to common shares if more advantageous. Anti-dilution provisions may adjust ownership stakes prior to this analysis, influencing final allocations.[51][53] For illustration, consider a $100 million acquisition scenario with the following simplified cap table (assuming Series B senior to Series A): founders hold 50% common stock, Series A investors hold 20% with a 1x non-participating preference on $4 million invested, and Series B investors hold 25% with a 1.5x participating preference on $9 million invested (ESOP holds the remaining 5% common). Series A elects to convert to common (as 20% of the remaining $86.5 million = $17.3 million > $4 million preference). Series B receives $13.5 million preference (1.5 × $9M) plus 25% pro rata of the remaining $86.5 million ($21.625 million), for a total of $35.125 million. The remaining $86.5 million is then distributed pro rata among all shareholders according to their ownership percentages: Series B receives an additional $21.625 million (25%), Series A (converted) $17.3 million (20%), founders $43.25 million (50%), ESOP $4.325 million (5%). This example highlights how preferences and elections can shift significant value, with final totals: Series B $35.125 million, Series A $17.3 million, founders $43.25 million, ESOP $4.325 million.[54][52]| Shareholder Class | Ownership % | Preference | Initial Payout | Pro Rata of Remainder | Total Payout |
|---|---|---|---|---|---|
| Series B (Preferred) | 25% | 1.5x on $9M | $13.5M | $21.625M | $35.125M |
| Series A (Preferred, converts) | 20% | 1x on $4M | $0 | $17.3M | $17.3M |
| Founders (Common) | 50% | None | $0 | $43.25M | $43.25M |
| ESOP (Common) | 5% | None | $0 | $4.325M | $4.325M |
| Total | 100% | - | $13.5M | $86.5M | $100M |