Cap-table hygiene: the six mistakes we see in first-time founder docs
A messy cap-table does not kill a round. It slows it. Cleanup costs you four weeks of diligence-driven discovery you could have avoided in two days.
We have looked at roughly 200 founder cap-tables in the last three years. Six mistakes show up over and over.
First — undocumented common-stock issuances. A co-founder left two years ago, their share was supposed to come back to the company, but the buyback paperwork was never filed. Their name still sits on the cap-table. Investor diligence flags it. We spend three weeks chasing the ex-co-founder for a signed transfer.
Second — ESOP grants that were promised but never papered. The CFO has been told she has 1% but there is no signed grant agreement and no board resolution. She believes she has it. Legally she does not. When the round closes and dilution is recalculated, she finds out she has less than she thought. Goodwill damage compounds quickly.
Third — convertible notes that were never converted. The angel round was done on a SAFE or a convertible note three years ago. The conversion event was supposed to be the Series A. Nobody actually filed the conversion. The notes are still outstanding. Now the Series B investor wants them off the cap-table before they invest.
Fourth — preferred shareholder consents that the founder forgot existed. Most preferred-stock agreements require the preferred-shareholder's consent to issue new shares above a certain threshold. The founder skipped this for a small bridge round. The investor finds out in diligence. The bridge has to be unwound and re-papered.
Fifth — shareholder agreements that conflict with each other. A founder signed an SHA with the Series A investor and a separate angel-round letter agreement with two angels. The two documents have inconsistent transfer-restriction terms. The Series B investor's lawyer reads both and flags the inconsistency. Now you have to renegotiate one of them.
Sixth — and the most common — wrong arithmetic in the cap-table spreadsheet itself. The total adds to 100.4%. The fully-diluted column does not match the issued column. The ESOP pool size differs across three tabs of the model. We see this in 30% of cap-tables we audit.
The fix for all six is the same — run a cap-table audit before you go to market. Half a day with the company secretary and a focused partner. Pull every issuance back to a board resolution. Reconcile against ROC filings. Build a single source-of-truth cap-table that ties out at every column. Audit-cost: low. Time saved in diligence: four to six weeks. We have never seen the math come out the other way.
