MBA Venture Finance and Cap Table Card Template

Venture Finance and Cap Table Concept Card: [Your company, case or course]

A concept card for the mechanics every founder, early employee and venture investor must be able to do on a napkin and then in a spreadsheet: pre-money and post-money valuation, priced rounds, post-money SAFEs, convertible notes with caps and discounts, the option pool shuffle, dilution through Seed, Series A and Series B, liquidation preferences (1x non-participating, participating, capped participation) and the exit waterfall, and founder vesting. It is for MBA students in the entrepreneurship and venture finance courses, admitted students who want a head start, and anyone about to sign a term sheet or an offer letter with equity. Worked example A follows a fictional early Corvane Robotics from founding to Series B with a computed cap table and waterfall; Worked example B is half solved and Exercise C is left for you, with a separate answer key. Source basis: Y Combinator's published post-money SAFE documents and user guide (checked October 2026), Kaplan and Stromberg (2003) on venture capital contracts, and the standard venture finance literature, written in original words. Replace every [bracketed] value and every row marked Example. This is a learning aid, not legal, tax or investment advice: financing documents are legal contracts and the signed text governs.

Document control

Contents

• When to use it
• The idea in plain language
• Formulas and notation
• Assumptions and limits
• How founders, investors and employees use this
• Worked example A (fully solved): Corvane Robotics from founding to Series B
• Liquidation preferences and the exit waterfall
• Founder vesting
• Worked example B (half solved): a convertible note converts
• Exercise C (unsolved): a founder leaves, a round closes, an exit arrives
• Process diagram
• Connections to other cards
• Common mistakes and misconceptions
• Self-test questions
• My notes and next steps
• Sources and further reading
• Answer key
• Revision history

When to use it

One-sentence rule: a valuation headline tells you very little until you know which shares it is "pre" or "post", which securities convert into it, how much of the option pool is hidden inside it, and what the preferred shares take before common shareholders receive anything at exit.

Use this card when you need to answer any of these questions:

The idea in plain language

A start-up raises money in steps. Each step sells new shares, or a promise of future shares, to investors. Four ideas carry almost all of the mechanics.

• Pre-money and post-money. The pre-money valuation is the price put on the company just before the new money arrives; the post-money valuation is pre-money plus the new money. The investor's ownership is the new money divided by the post-money valuation. The price per share is the pre-money valuation divided by the number of shares counted before the round, on a fully diluted basis (all shares, all options granted and, by convention, the unissued pool and any securities that convert in the round).
• Instruments that convert later. Very early money often comes before anyone wants to set a price. A SAFE (simple agreement for future equity, created at Y Combinator in 2013) and a convertible note (a loan that converts into equity) both turn into shares at the next priced round, at a better price than the new investors pay: a valuation cap sets a maximum price, a discount gives a percentage off the round price. Y Combinator's documents page states that the post-money SAFE has been its standard since 2018 (checked October 2026). In the post-money SAFE the cap is "post" all SAFE money, so the holder's percentage is simply amount divided by cap, and SAFEs do not dilute each other; they are diluted by the next round's new money and by any pool increase in that round.
• The option pool shuffle. Investors usually ask that a new or larger employee option pool be created before their money comes in, so that the pool is counted in the pre-money share count. The new investors are then not diluted by the pool; the existing holders are. The headline pre-money therefore includes value that existing holders do not keep, and the effective pre-money is lower.
• Preferences. Venture investors buy preferred shares. The most important preference is the liquidation preference: in a sale or wind-down, the preferred is paid back its investment (1x) before common shareholders receive anything. Non-participating preferred takes either its preference or its as-converted share, whichever is larger. Participating preferred takes its preference and then also shares in what is left, as if converted. A cap on participation limits the total. Kaplan and Stromberg (2003) documented how venture contracts allocate cash flow rights, control rights and contingencies in this way.

Founders' vesting completes the picture: founders' shares are typically subject to repurchase by the company if a founder leaves early, so that the equity follows the work.

Formulas and notation

Post-money SAFE. With existing capitalisation $S$ (all shares, granted and promised options and the unissued pool before the round) and SAFEs $j = 1, \dots, m$ with purchase amounts $a_j$ and post-money caps $K_j$:

The holder converts at the lower of $P_j$ and the round price (or the discounted round price in a discount SAFE).

Convertible note.

Option pool shuffle (pool top-up $X$ included in the pre-money so that the unissued pool equals target $p^{*}$ of post-money fully diluted shares):

Dilution of an existing holder owning share $s$ before the round:

Exit payoff to one class of preferred (preference $L$, as-converted share $\alpha$, exit proceeds $E$, cap multiple $M$ on investment $I$):

Assumptions and limits

1. Definitions live in the documents. What counts in "fully diluted", "Company Capitalization" or the note's cap share count is defined in each instrument and term sheet. This card uses common conventions; the signed text wins.
2. Post-money SAFE convention. Following Y Combinator's user guide (checked October 2026), the conversion share base includes outstanding shares, granted and promised options, the unissued pool and all converting SAFEs and notes, and excludes the pool increase made in the priced round (the SAFE text counts that increase only to the extent that promised options exceed the unissued pool that existed before it). Pre-money (original) SAFEs used a different base. Worked example A has no promised options.
3. Rounding. Shares are whole numbers. Round each holder's shares, not the percentages, and reconcile the total.
4. Pari passu or stacked. Worked example A treats all preferred series as equal in seniority (pari passu). Many companies stack later series senior to earlier ones; the waterfall then pays Series B first.
5. Options at exit. The waterfall treats granted options as exercised common and ignores exercise prices; the unissued pool is cancelled. A precise model nets each tranche's strike and checks vesting and acceleration terms. The Seed class is treated as one class that converts as a block; in the documents the SAFE shadow series have their own per-share preference amounts and could convert separately, which changes the waterfall only slightly near the Seed conversion threshold.
6. No dividends, no anti-dilution adjustment. Cumulative dividends and price-based anti-dilution (full ratchet or weighted average) change the numbers in a down round; they are listed in the further reading.
7. Taxes ignored. Founder and employee taxes on shares and options depend on country, instrument and timing. Check the official tax authority and a qualified adviser before you rely on any after-tax figure.
8. Valuation is an input. None of these formulas tell you what the company is worth; they tell you how a given price splits ownership and proceeds.

How founders, investors and employees use this

Gompers, Gornall, Kaplan and Strebulaev (2020) surveyed venture capitalists on how they make decisions; the team, the business model and the market weigh more than the detailed valuation model, but contract terms are negotiated hard. Use the waterfall to see what each term means in money before you negotiate it (mba/mba-negotiation-planner).

Worked example A (fully solved): Corvane Robotics from founding to Series B

Situation (fictional). Corvane Robotics was founded by two engineers, Founder A with 5,000,000 common shares and Founder B with 3,000,000. Before any outside money the board set aside a 1,000,000-share option pool, of which 300,000 options were granted to the first two hires. The company then raised two post-money SAFEs, a priced Seed, a Series A and a Series B. All numbers are fictional.

Step 1: founding cap table

Step 2: two post-money SAFEs

SAFE 1: USD 1.0m at a USD 8m post-money valuation cap. SAFE 2: USD 0.5m at a USD 10m cap. Each holder's percentage of the Company Capitalization is known on signing: 1.0/8 = 12.5% and 0.5/10 = 5.0%, so 17.5% in total.

The SAFEs do not dilute each other: adding SAFE 2 did not change SAFE 1's 12.5%. The founders bear the dilution.

Step 3: Seed round with the option pool shuffle

Term sheet: USD 4.0m at a USD 16m pre-money valuation (USD 20m post-money), so the Seed investors buy 20%. The term sheet requires an unissued pool of 10% of the post-money fully diluted shares, created inside the pre-money, and states that the SAFEs convert in the round (they are counted in the pre-money shares).

The SAFE holders convert at USD 0.7333 and USD 0.9167, discounts of 46.5% and 33.2% to the Seed price: the reward for investing earlier and with more risk. Under the post-money SAFE convention they are diluted by the Seed money and by the pool increase, like the founders.

Why the shuffle matters. Had the pool been topped up after the round (outside the pre-money), the price would have been USD 1.4667, the Seed investors would have ended at 18.97% and the founders at 55.66% rather than 54.85%. The headline USD 16m is the same in both cases; who bears the pool is not.

Step 4: Series A and Series B

Before the Series A the company granted 900,000 options from the pool. Series A: USD 12m at USD 36m pre-money (USD 48m post, 25% to investors), unissued pool topped up to 12% post-money. Before the Series B, 1,200,000 more options were granted. Series B: USD 30m at USD 120m pre-money (USD 150m post, 20%), pool topped up to 10% post-money.

The same three formulas apply each time (=ROUND((k*FD0-U0)/(1-k),0), =Vpre/FDpre, =ROUND(I/P,0)), with $FD_0$ the post-money total of the previous round and $U_0$ the unissued pool after the grants.

Cap table by stage (fully diluted).

Reading. The founders' combined fully diluted stake falls from 88.89% to 54.85% after the Seed (SAFEs, pool and Seed together), 35.93% after the Series A and 26.93% after the Series B. Founder A's 5,000,000 shares are worth USD 25.25m on paper at the Series B price; that is a price for preferred shares with preferences, so common is worth less than this per share in any valuation that recognises the preferences.

Liquidation preferences and the exit waterfall

Assume each preferred series has a 1x non-participating preference, pari passu (equal seniority). The SAFE holders converted into shadow series of Seed preferred with a preference equal to their purchase amount, so the Seed class preference is USD 5.5m (4.0m plus 1.5m). At exit, the unissued pool is cancelled and the 2,400,000 granted options are treated as exercised common, giving 26,732,362 shares outstanding.

Procedure. (1) Pay all preferences if proceeds allow (pro rata if not). (2) Each non-participating class compares its preference with what it would receive by converting; the lowest per-share preference converts first. (3) Repeat until no class wants to change. With pari passu 1x preferences, the thresholds are: Seed converts above an exit of USD 59.35m, Series A above USD 74.83m and Series B above USD 135.0m (at which its 22.22% equals USD 30m).

Amounts in USD m. Excel at USD 120m, non-participating: Series B =MAX(30, 120*5940525/26732362) gives 30.0 (keeps the preference); then the remaining USD 90m is shared by the converting shares: Series A =90*5565863/(10400000+5565863+4825974) = 24.093. Participating: Series B =30+(120-30)*5940525/26732362 = 50.0.

Reading. At a USD 40m sale, after raising USD 47.5m, the founders receive nothing even though they own 26.93% fully diluted. At USD 120m, making only the Series B participating moves USD 7.695m from the founders to the Series B. At high exits the two structures converge in percentage terms but participation still costs the common its share of the USD 30m preference.

The flat segment up to USD 47.5m is the preference overhang. The kinks are the exits at which a class switches from its preference to converting. A useful board exercise is to mark on this chart the exit range the company considers realistic and read the founders' and employees' outcomes there, not at the headline valuation.

Founder vesting

A common structure is four-year vesting with a one-year cliff: nothing vests in the first 12 months, 25% vests at the cliff, and the rest vests monthly over the next 36 months. Unvested shares can be repurchased by the company, usually at the lower of cost and fair value, when a founder leaves. Investors generally ask for founder vesting even when the founders already own their shares outright, so that a departing founder does not keep equity the remaining team must earn.

Further terms to understand: acceleration on a sale (single trigger: the sale alone; double trigger: the sale and a termination), credit for time served before the financing, and good-leaver or bad-leaver provisions in some jurisdictions. Tax treatment of restricted founder shares differs by country; in the United States, for example, a Section 83(b) election has a short statutory deadline. Check the official tax authority (irs.gov in the United States) and a qualified adviser; this card gives no tax advice. Wasserman (2012) studies how founders split equity, roles and control, and how early choices limit later ones.

Worked example B (half solved): a convertible note converts

Situation (fictional). A digital-health spin-out from Tallow Creek Medical Center issued a convertible note of USD 750,000 with 6% simple interest, a 20% discount and a USD 6m pre-money valuation cap. Fifteen months later it closes a Series A at USD 1.50 per share. The note defines the cap price as the cap divided by 10,000,000 shares (the pre-money capitalisation, excluding the note itself).

Questions: (8) Which term, cap or discount, decided the price, and why? (9) If the Series A price had been USD 0.70, what would the conversion price and share count be? (10) In one sentence, why do new investors prefer that conversion shares be included in the pre-money share count, and why do founders prefer the opposite?

Exercise C (unsolved): a founder leaves, a round closes, an exit arrives

Situation (fictional). Two founders, X and Y, each hold 6,000,000 shares under four-year vesting with a one-year cliff and monthly vesting after the cliff. The company has a 700,000-share unissued option pool and no grants. Founder Y leaves after 20 months; the company repurchases Y's unvested shares. The company then raises a Series A of USD 6m at USD 18m pre-money with a 10% post-money unissued pool created in the pre-money (option pool shuffle). Later the company is sold. Assume no options are granted before the sale and the unissued pool is cancelled at exit.

1. How many shares does Founder Y keep, and how many are repurchased?
2. What is the pool increase, the Series A price and the number of Series A shares?
3. Build the post-money fully diluted cap table with percentages.
4. For exits of USD 15m, USD 50m and USD 150m, compute what the Series A receives under (a) 1x non-participating, (b) 1x participating without a cap and (c) 1x participating capped at a 3x total return.
5. Under (c), at what exit value is the cap reached, and above what exit value does the Series A convert instead?
6. Under (c), how much does Founder X receive at each exit?

Process diagram

The diagram mirrors the order of the worked example: start from the existing cap table, convert the early instruments, apply the shuffle, price the round, then test the exit waterfall.

Connections to other cards

• Is the opportunity worth funding at all? mba/mba-opportunity-assessment-card (market sizing, unit economics, kill criteria) and the course map in mba/mba-entrepreneurship-guide.
• Where the valuation comes from: mba/mba-dcf-valuation-card, finance/comparable-companies-analysis and finance/valuation-report; venture investors often work back from a target exit value and a required multiple.
• Time value and the investor's required return: mba/mba-npv-irr-card.
• Options and staged financing as real options: mba/mba-options-real-options-card and mba/mba-decision-trees-card.
• Negotiating the term sheet: mba/mba-negotiation-planner and mba/mba-negotiation-guide.
• Customer economics behind the plan: mba/mba-customer-lifetime-value-card and finance/unit-economics-analysis.
• Working documents: startup/pitch-outline for the raise, startup/investor-update and startup/board-deck after it.

Common mistakes and misconceptions

1. Treating the headline pre-money as the founders' value. The pool top-up and converting SAFEs sit inside it; in Worked example A the effective pre-money is about USD 14.96m, not USD 16m.
2. Computing percentages on outstanding shares instead of fully diluted shares. Investors price on a fully diluted basis; using only issued shares overstates every holder's stake.
3. Assuming SAFEs dilute only the founders forever. Post-money SAFE holders keep their percentage until the priced round, then are diluted by its new money and pool increase.
4. Mixing pre-money and post-money caps. A USD 8m post-money cap and a USD 8m pre-money cap give different ownership; read the document heading and definitions.
5. Forgetting accrued interest on a convertible note. The interest converts too, so the note holder receives more shares than principal alone implies.
6. Reading ownership as proceeds. Owning 26.93% does not mean receiving 26.93% of a sale; below USD 47.5m the founders in Worked example A receive nothing.
7. Ignoring participation. A higher valuation with participating preferred can leave founders with less money than a lower valuation with non-participating preferred at the exits that are likely.
8. Valuing common at the preferred price. The preferred price buys preferences; common is worth less per share.
9. Sizing the option pool to the investor's request instead of the hiring plan. An oversized pool in the pre-money transfers value from existing holders for options that may never be granted.
10. Skipping founder vesting because "we trust each other". A co-founder departure without vesting leaves a large passive holder and often blocks the next round.
11. Rounding percentages instead of shares. Cap tables reconcile to the share; percentage rounding creates or destroys shares.
12. Copying a waterfall from a template without checking seniority. Pari passu and stacked preferences pay differently whenever proceeds fall short of the total preference.

Self-test questions

1. A company raises USD 3m at USD 12m pre-money. What is the post-money valuation and the investor's percentage?
2. A founder signs a USD 400,000 post-money SAFE with a USD 5m cap. What percentage of the Company Capitalization will the investor own at conversion (assuming the cap applies), and does a later SAFE change it?
3. Explain the option pool shuffle in two sentences and say who bears its cost.
4. Pre-round fully diluted shares are 10,000,000 with 400,000 unissued. A round sells 25%, and the term sheet asks for a 10% unissued pool post-money inside the pre-money. Compute the pool increase.
5. A note of USD 500,000 with 8% simple interest converts after 12 months at a 20% discount; the round price is USD 2.00 and the cap price is USD 1.80. What is the conversion price and how many shares are issued?
6. What is the difference between 1x non-participating and 1x participating preferred? Give an exit where they pay the same.
7. In Worked example A, why does the Seed class convert at a lower exit value than the Series B?
8. Why do later-stage investors care more about the preference stack than early-stage investors?
9. A co-founder with 4,000,000 shares on four-year vesting with a one-year cliff leaves after 30 months. How many shares are vested?
10. Interleaving: which tool do you use? (a) Estimating what Corvane is worth today. (b) Deciding whether a USD 18m price with participation beats a USD 15m clean price. (c) Telling an employee what 50,000 options might be worth in a USD 200m sale.

My notes and next steps

Sources and further reading

• Y Combinator. Documents: post-money SAFE (valuation cap only, discount only, uncapped MFN) and pro rata side letter; SAFE user guide with sample conversion math (ycombinator.com/documents, checked 2026-10-28). The documents page states that the SAFE was created at Y Combinator in 2013 and that the post-money SAFE has been its standard since 2018.
• Kaplan, S. N., and Stromberg, P. (2003). Financial contracting theory meets the real world: an empirical analysis of venture capital contracts. The Review of Economic Studies, 70(2), 281-315.
• Gompers, P. A., Gornall, W., Kaplan, S. N., and Strebulaev, I. A. (2020). How do venture capitalists make decisions? Journal of Financial Economics, 135(1), 169-190.
• Gompers, P., and Lerner, J. (1999). The Venture Capital Cycle. MIT Press.
• Wasserman, N. (2012). The Founder's Dilemmas. Princeton University Press.
• Textbooks and practitioner books (by name only): Metrick, A., and Yasuda, A., Venture Capital and the Finance of Innovation; Feld, B., and Mendelson, J., Venture Deals; Berk, J., and DeMarzo, P., Corporate Finance.
• Open resource: OpenStax, Entrepreneurship (CC BY-NC-SA 4.0), chapters on funding and financing.

Answer key

Worked example B. (2) Cap price USD 0.60. (4) Conversion price USD 0.60, the lower of 0.60 and 1.20. (5) 1,343,750 shares (=ROUND(806250/0.6,0)). (7) Effective discount 60.0%. (8) The cap decided the price, because the round was priced well above the cap (USD 15m pre-money implied against a USD 6m cap); the discount only decides the price when the round price is below the cap price divided by $(1-d)$, here USD 0.75. (9) At USD 0.70 the discount price is USD 0.56, below the cap price, so the note converts at USD 0.56 into 1,439,732 shares. (10) Counting the conversion shares in the pre-money share count lowers the round price, so the new investors still receive $I/V_{post}$ and the existing holders (mainly the founders) bear the whole conversion dilution; counting them after the round makes the new investors share it, which founders prefer. The term sheet must say which applies.

Exercise C. (1) Vested 6,000,000 x 20/48 = 2,500,000 shares kept; 3,500,000 repurchased. (2) Existing fully diluted shares 9,200,000; $k = 0.10/(1-0.25) = 0.1333$; pool increase 607,692; pre-money fully diluted 9,807,692; price USD 1.8353; Series A shares 3,269,231. (3) Founder X 6,000,000 (45.88%), Founder Y 2,500,000 (19.12%), unissued pool 1,307,692 (10.00%), Series A 3,269,231 (25.00%), total 13,076,923. (4) At exit the pool is cancelled, so the Series A holds 27.78% of 11,769,231 shares. USD 15m: (a) 6.000, (b) 8.500, (c) 8.500. USD 50m: (a) 13.889, (b) 18.222, (c) 18.000. USD 150m: (a) 41.667, (b) 46.000, (c) 41.667 (converts). All USD m. (5) The 3x cap (USD 18m) is reached at an exit of USD 49.2m; the Series A converts above USD 64.8m, where 27.78% of the exit exceeds USD 18m. (6) Founder X holds 6/8.5 of common: USD 4.588m, USD 22.588m and USD 76.471m.

Self-test.

1. Post-money USD 15m; investor 3/15 = 20%.
2. 400,000 / 5,000,000 = 8% of the Company Capitalization; a later SAFE does not change it, because the cap is post all SAFE money. The percentage falls only when the priced round adds new money and any pool increase.
3. The investor requires the new or enlarged option pool to be created before the round and counted in the pre-money share count. The new investor is not diluted by it; the existing holders (founders, earlier investors, SAFE holders under the post-money SAFE) bear it, so the effective pre-money is lower than the headline.
4. $k = 0.10/0.75 = 0.1333$; $X = (0.1333 \times 10{,}000{,}000 - 400{,}000)/(1 - 0.1333) = 1{,}076{,}923$ shares.
5. Amount USD 540,000; discount price USD 1.60; cap price USD 1.80; conversion price USD 1.60; 337,500 shares.
6. Non-participating takes the larger of its preference and its as-converted share; participating takes the preference and then its as-converted share of the remainder. They pay the same when proceeds are at or below the total preference (everything goes to preferences under both).
7. Its preference per share (USD 1.1397) is the lowest, because the Seed and SAFE money bought shares at low prices; converting becomes worthwhile at a lower exit.
8. They buy at high prices, so their as-converted share of a modest exit is small; the preference is their main protection against an exit below the post-money valuation.
9. 4,000,000 x 30/48 = 2,500,000 shares.
10. (a) Valuation tools (mba/mba-dcf-valuation-card, comparables, a venture-method target return). (b) The exit waterfall across a range of exit values. (c) The waterfall at USD 200m, then the employee's share of common, net of the exercise price.

Revision history

Standard and licence note

Based on the publicly available post-money SAFE documents and user guide published by Y Combinator (checked October 2026) and on the venture finance literature listed above (Kaplan and Stromberg 2003; Gompers and Lerner 1999). The text, examples, numbers and questions are original; no textbook or practitioner text is copied or paraphrased, and Corvane Robotics and Tallow Creek Medical Center are fictional. The template is independent and not affiliated with or endorsed by any business school, accelerator, law firm or investor. Check the current version of any financing document and take legal and tax advice before you rely on it. Template licence: MIT.