Week 6: The Capitalization Table

As you build your operating strategy and plan, you will identify task and resource needs and the costs associated with acquiring these resources and completing these tasks. Typically, professional investors, such as Angel Investors or Venture Capitalists, will invest in your company to help you execute your strategy and plan. In return for this investment, investors will receive a certain number of shares in your company. As a result of this investment transaction, the founders will now own somewhat less of the company while the new investors now own a corresponding portion of the company. This process of reduction in shareholders' equity positions is called dilution and is a completely normal process.  

Despite dilution being a normal process, there are ways to help preserve your shareholder equity by seeking and securing non-dilutive sources of capital, such as grants. In all cases, savvy founders continually think about how to simultaneously de-risk their technology and create value in a capital efficient way so that future funding events minimize the number of shares that an investor will receive. 

Below are a few short videos that describe how to create your initial cap table and how it matures as you consider new investment as well as important concepts such as the option pool, which is the allocation of shares set aside for future employee hires.