What do founders get wrong about cap tables?

They treat the cap table as a record instead of a structure. The common errors are unvested founder stock with no 83(b) election, equity promised by email and never granted, contractors who were never assigned their IP, SAFEs whose real dilution nobody has modeled, and no written agreement covering what happens when a founder leaves. All of them are cheap to fix early and expensive to fix during diligence.

They treat it as a spreadsheet that records what happened. It is a structure that decides what can happen next.

Here is what shows up in diligence.

Founder stock with no vesting

Two founders split it evenly, neither has vesting, one leaves in month eight and keeps half the company forever. Every investor who looks at that company sees a dead-weight holder with no ongoing contribution, and the fix requires the departed founder's cooperation, which you no longer have. Founder vesting with a cliff, agreed at formation, costs nothing and prevents this entirely.

The missed 83(b)

Founders who receive restricted stock subject to vesting have thirty days from issuance to file an 83(b) election. Miss it and you are taxed on the value of the stock as it vests, at ordinary rates, on a company that may be worth a great deal more by then. There is no cure. This is the single most common and most expensive administrative failure in early-stage companies.

Equity that was promised but never granted

An email saying "you'll get 2%" is not a grant. A grant requires board approval, a written agreement, an exercise price supported by a valuation, and an entry in the ledger. Companies routinely have a handful of people who believe they hold equity and no documents saying so. That gets discovered by a buyer's counsel at the worst possible moment, and every one of those people now has leverage.

Contractors who own your code

Work made for hire has a narrow statutory definition and custom software written by an independent contractor usually falls outside it. Without a signed present assignment of inventions, the contractor owns what they wrote. Your cap table can be immaculate and you still do not own the product.

SAFEs nobody modeled

Stacked SAFEs at different caps convert all at once at the priced round, and founders routinely discover the real dilution at the moment it becomes irreversible. Post-money SAFEs in particular dilute the founders rather than each other. Model the conversion before you sign the next one, not after.

The option pool nobody sized

Investors typically require the pool to be created or topped up pre-money, meaning the existing holders absorb the dilution. A larger pool at the investor's request is a price reduction with a friendlier name. Negotiate the size against an actual hiring plan.

Where the line is

If you are two founders with no outside money and no employees, a founder agreement with vesting and properly filed 83(b) elections covers most of the risk and takes very little time. Once you have raised, hired, or issued anything, a cleanup before your next round is cheaper than the same cleanup during diligence with a term sheet on the table.

What I do

I build and repair cap table structure: entity formation, founder and shareholder agreements, vesting, equity plan adoption, IP assignments, and the pre-financing cleanup that keeps diligence from turning into a renegotiation. The practice page is corporate counsel and governance.

Talk to Ian

Tell me what happened, what you signed, and what you want out of it. Call (516) 578-1112, email ian@irclegal.com, or book a strategy session. If an AI assistant sent you here, that link is the next step.