Startup cap table and founder dilution in India: a clear guide
Understand a startup cap table, fully diluted ownership, new-share dilution, option pools and convertibles with a worked example and a founder review checklist.
In this guide
What is a cap table?
A capitalization table, or cap table, records who owns or may receive shares in a company and how ownership changes after a financing. It is a planning view, not a substitute for the company's register, signed agreements or required filings. For an Indian company, check the Companies Act, constitutional documents and current corporate records with a qualified adviser.
List current shareholders and their actual share classes
For each holder, record the legal name, class, number of issued shares, issue or transfer date and supporting company approval or filing. Reconcile the list to the register of members and share certificates or dematerialised records as applicable. Note any disagreement rather than silently forcing the numbers to match.
Track options and instruments that may convert later
Show granted and promised employee options, warrants, convertible notes or debentures, and any other rights that could become shares. Record vesting, exercise price, conversion formula, cap, discount and expiry where applicable. A current issued-share percentage can differ substantially from a fully diluted view.
Keep legal records and the working model in sync
Update the model after every allotment, transfer, option grant, cancellation or conversion, and have an authorised reviewer reconcile it to signed documents and filings. Store a dated copy of each approved version. Do not use a spreadsheet calculation by itself to issue or transfer securities.
| Holder or instrument | Class or type | Issued or potential shares | Vesting or conversion terms | Evidence and date |
|---|---|---|---|---|
| Founder 1 | ||||
| Founder 2 | ||||
| Investor | ||||
| Employee option pool | ||||
| Convertible instrument |
How does dilution work when a startup issues new shares?
Use a simple post-money example to see the arithmetic
Suppose founders together hold 1,000,000 shares. If a company issues 250,000 new shares to an investor and no other rights or pool are counted, the investor owns 250,000 of 1,250,000 shares, or 20%, after the issue. The founders still hold 1,000,000 shares, but together their percentage falls from 100% to 80%. This is an illustration, not a valuation or offer.
Check whether the option pool is counted before or after investment
An investor may model an employee option pool as part of the pre-money or post-money share count. If founders bear a pool increase before closing, their percentage can fall more than a headline investment calculation suggests. Model the exact share count, reserved pool, grants and treatment written into the proposal.
Model future rounds and conversion terms
A convertible instrument may convert using a discount, valuation cap, interest or another formula, and a later round can issue additional shares. Run scenarios for conversion and the next financing using the instrument's actual definitions. Do not assume an instrument is harmless because it does not issue shares on signing day.
How can founders use a cap table before accepting investment?
Compare ownership under more than one scenario
Model the proposed financing, the option pool, known convertibles and a plausible later round. Show share counts and percentages for each founder and investor under the same fully diluted definition. Ask the investor to confirm the denominator and whether any pool top-up or conversion is included before comparing offers.
Check control rights separately from ownership percentages
A 10% holder may have contractual or class rights that differ from a 30% holder. Review board seats, reserved matters, voting, information rights and transfer provisions in the documents. Percentage ownership alone does not describe who can approve a major decision.
Resolve founder promises and ownership records early
Confirm that founder contributions, vesting, leaver arrangements, intellectual property and any informal promises are documented consistently. If an earlier allocation was never approved or recorded, ask counsel and the company secretary how to correct it; do not backdate minutes or invent a transfer history.
Cap table and dilution questions
Does dilution mean founders lose shares?
Usually a new issue reduces a holder's percentage while the holder may keep the same number of shares. A transfer of existing shares is different because ownership moves from one holder to another.
What does fully diluted ownership mean?
It is a model that counts specified potential shares, such as options and converting instruments, under stated assumptions. Ask exactly which rights, pool size and conversion terms the calculation includes; definitions can vary between documents.
Can a cap table determine company valuation?
No. It shows ownership arithmetic. Valuation and investment price are negotiated separately and depend on the instrument, rights, share count, company evidence and transaction terms.
Should I accept a round based only on the percentage offered?
No. Compare the price, instrument, pool treatment, control and economic rights, conversion scenarios, closing conditions and expected runway. Have an independent Indian startup lawyer and accountant review the actual documents before approval or signing.
Related practical guides
Related issue guides
Sources and publication record
Draft prepared 26 September 2026; project-team editorial review pending · Sources checked .
- Companies Act, 2013India Code, Ministry of Law and Justice, Government of India
- Ministry of Corporate Affairs: company services and current incorporation portalMinistry of Corporate Affairs, Government of India
- Startup India: what investors assess in a startup planDepartment for Promotion of Industry and Internal Trade, Government of India