Meaning
An internal spreadsheet models the equity ownership distribution of a business before formal corporate actions or funding rounds are finalized. Founders use a draft cap table to simulate the dilutive effects of issuing new shares or stock options. This temporary record assists in calculating prospective ownership percentages.
Ownership Modeling
Prospective scenarios are tested by modifying investor allocations and option pool sizes. During investment discussions, the draft cap table dynamically updates to reflect proposed pre-money valuations and investment amounts. This simulation shows founders how much equity they retain.
Negotiation Cost
Reaching agreement on the numbers consumes hours of debate among partners and early employees. Inaccurate calculations or misaligned expectations can stall a financing round, costing the startup both momentum and legal fees. This risk forces the management team to spend considerable attention verifying each line.
Verification Burden
Reconciling the speculative numbers with official stock ledgers requires continuous administrative attention. Because a draft cap table lacks legal standing, any discrepancy with the final signed agreements can create disputes with early investors. This discrepancy requires careful alignment between corporate lawyers and the executive team, who must spend hours verifying every historical share issuance to protect the venture from future claims.
