Cap Table Health Framework

Identify cap table issues before investors do — option pool adequacy, liquidation preference overhang, anti-dilution trigger risk, drag-along mechanics and missing consents from prior rounds.

How to Use This Framework

A messy or poorly structured cap table is one of the most common avoidable reasons fundraising processes slow down or fail. Investors and their lawyers will scrutinise every share class, every option grant, every investor right, and every Companies House filing. Issues that are manageable before a fundraising process become negotiating leverage — or deal-breakers — once a term sheet is on the table.

This framework surfaces the most common cap table issues across five areas: share class simplicity, option pool and ESOP health, investor rights, dilution modelling, and administrative accuracy. Score each question: 2 = fully in place, 1 = partially in place, 0 = not in place.

Why this matters: The majority of cap table issues that derail fundraising processes are entirely preventable. Excessive share class complexity, missing HMRC EMI valuations, consent thresholds that create holdout risk, and stale Companies House filings are all fixable with time — but not in the middle of a live process. This framework tells you where to focus your remediation effort now.

Assessment

Area 1: Share Class Simplicity

Q1. Does the company have a simple share class structure, ideally ordinary shares and a single class of preference shares?

2 — Fully in place: ordinary shares plus at most one or two classes of preference shares; no legacy share classes from prior rounds that create unnecessary complexity 1 — Partially in place: three or four share classes exist; some complexity but no structural impediment to a new round; a simplification plan is in place 0 — Not in place: five or more share classes; legacy classes with unclear economic rights; new investors will require legal clarification before proceeding

Q2. Are liquidation preferences non-participating and capped at a reasonable multiple (1x–1.5x)?

2 — Fully in place: non-participating liquidation preferences at 1x; clean waterfall that does not materially disadvantage founders in realistic exit scenarios 1 — Partially in place: preferences exist at 1x but with participation rights, or at 1.5x–2x without participation; impact on founder economics has been modelled 0 — Not in place: participating preferences above 1.5x, or multiple liquidation preference stacks that materially limit founder exit economics

Q3. Are anti-dilution provisions limited to broad-based weighted average, with no full ratchet provisions in place?

2 — Fully in place: broad-based weighted average anti-dilution only; no full ratchet; anti-dilution provisions are market-standard and well-understood by all parties 1 — Partially in place: narrow weighted average or ratchet provisions on a minority of shares; legal counsel has reviewed and impact has been modelled 0 — Not in place: full ratchet provisions on a material proportion of shares; impact on new investor economics in a down round is significant

Q4. Are there any ratchet mechanisms (performance ratchets, milestone ratchets) that could complicate a new round's economics?

2 — Fully in place: no performance or milestone ratchets in any existing shareholder agreements; clean economic structure for new investors 1 — Partially in place: ratchets exist but have either been triggered (and therefore settled) or are immaterial in scale; investor counsel has reviewed 0 — Not in place: live performance ratchets that could materially alter the cap table before or at the time of a new round; legal complexity will slow the process

Area 2: Option Pool & ESOP

Q5. Is the unallocated option pool sized appropriately for the next 12–18 months of hiring, typically 10–15% of fully diluted?

2 — Fully in place: option pool sized at 10–15% fully diluted; unallocated pool sufficient to cover the hiring plan through the next funding round 1 — Partially in place: option pool exists but is below 8% or above 20%; new investors will likely require a resize as a condition of investment 0 — Not in place: no option pool or pool is fully allocated; no formal ESOP scheme in place; talent attraction will be constrained

Q6. Are all option grants documented with signed option agreements, accurate strike prices, and clear vesting schedules?

2 — Fully in place: every grant has a signed option agreement; strike prices reflect the valuation at grant date; 4-year vesting with 1-year cliff is standard across all grants 1 — Partially in place: most grants are documented but some early grants have missing paperwork or informal terms; remediation is in progress 0 — Not in place: option grants are informal, undocumented, or inconsistently documented; investors will require full remediation before closing

Q7. Is the EMI option scheme HMRC-compliant, with current valuations and all grants within HMRC limits?

2 — Fully in place: HMRC valuation agreed within the last 90 days; all grants notified to HMRC within 92 days of grant; per-employee and company limits respected 1 — Partially in place: EMI scheme exists but valuation is stale (over 90 days), or one or more grants have not been formally notified to HMRC 0 — Not in place: no EMI scheme; unapproved options only; employees are missing the significant tax advantages of EMI; scheme eligibility has not been assessed

Q8. Are good leaver / bad leaver provisions clearly defined and consistently applied across all option and share agreements?

2 — Fully in place: good/bad leaver definitions documented; treatment of unvested and vested options on departure specified; applied consistently across all agreements 1 — Partially in place: provisions exist but wording varies between older and newer agreements, creating inconsistency risk on departure 0 — Not in place: no good/bad leaver provisions; departing employees or shareholders could retain fully vested options indefinitely regardless of circumstances

Area 3: Investor Rights

Q9. Are drag-along and tag-along rights in place, with drag thresholds that allow a majority to force an exit without minority holdout?

2 — Fully in place: drag-along at 75%+ shareholder approval; tag-along rights for all shareholders; thresholds are workable and consistent with market standard 1 — Partially in place: drag/tag provisions exist but drag threshold requires near-unanimity, creating potential holdout risk in an exit scenario 0 — Not in place: no drag-along rights; any shareholder can block an exit; this is a significant risk for new investors and will be flagged in diligence

Q10. Are investor consent thresholds set at levels that allow the company to operate without requiring approval for routine matters?

2 — Fully in place: consent rights limited to reserved matters (new share issuance, M&A, winding up, material debt); routine operations require no investor consent 1 — Partially in place: consent list is broader than market standard; some operational decisions (hiring above a salary threshold, new contracts) trigger consent requirements 0 — Not in place: extensive reserved matters list requiring investor consent for routine decisions; creates operational friction and will concern new investors

Q11. Are information rights clearly specified, with reporting obligations that are manageable and aligned with the board pack cadence?

2 — Fully in place: information rights specify monthly management accounts, annual audited accounts, and board pack access; obligations are being met consistently 1 — Partially in place: information rights exist but reporting is not consistently delivered on schedule, or the rights create more obligations than the business currently meets 0 — Not in place: information rights are either absent (investors have no formal rights) or the obligations are not being met; investor relations risk

Q12. Are pre-emption rights structured so that they can be waived efficiently, without requiring individual consent from each minor shareholder?

2 — Fully in place: pre-emption rights can be waived by a simple majority of the relevant class; no requirement for individual consent from each shareholder 1 — Partially in place: pre-emption rights can be waived but the process is cumbersome; waiver requires outreach to a large number of minor shareholders 0 — Not in place: pre-emption rights require individual consent from every shareholder, making a new round administratively complex and slow

Area 4: Ownership & Dilution Modelling

Q13. Is a fully diluted cap table maintained on a cap table management platform (Carta, Capdesk, or equivalent)?

2 — Fully in place: fully diluted cap table on Carta or Capdesk, updated in real time; includes all shares, options, warrants, and convertibles; reconciles to Companies House 1 — Partially in place: cap table maintained on a spreadsheet; broadly accurate but lacks real-time updating and may not capture all convertibles 0 — Not in place: no current fully diluted cap table; ownership percentages must be reconstructed from original documents and shareholder agreements

Q14. Is a waterfall model maintained that shows exit proceeds by shareholder at various exit valuations?

2 — Fully in place: waterfall model updated after each funding event; shows proceeds by shareholder at 1x, 3x, 5x, and 10x exit valuations; reviewed annually 1 — Partially in place: a waterfall was built at the last round but has not been updated; approximate output only due to stale inputs 0 — Not in place: no waterfall model; founders and existing investors do not have a clear view of their economic position at various exit outcomes

Q15. Has the dilution impact of the next funding round been modelled, including the option pool top-up, at a range of valuations?

2 — Fully in place: pre- and post-money dilution modelled for the next round; option pool expansion included; founder and investor ownership shown at pre-money range of £X–£Y 1 — Partially in place: dilution has been estimated but not formally modelled with a range of scenarios; option pool impact has not been included 0 — Not in place: no dilution modelling for the next round; founders do not have a clear view of their post-round ownership

Q16. Has founder ownership at realistic exit scenarios been modelled, and is it sufficient to maintain founder motivation and alignment?

2 — Fully in place: founder ownership at exit modelled across multiple scenarios; founders retain meaningful economic stake at 3x–5x exit valuations 1 — Partially in place: founder economics have been considered but a formal model across exit scenarios has not been prepared 0 — Not in place: founder ownership at exit has not been modelled; risk that excessive dilution has undermined founder alignment without being recognised

Area 5: Data & Administration

Q17. Are all Companies House filings current, with share allotments, officer changes, and confirmation statements filed on time?

2 — Fully in place: all Companies House filings up to date; no overdue confirmation statement; all share allotments filed within the required timeframe 1 — Partially in place: most filings current but one or two minor items are overdue; remediation is straightforward and in progress 0 — Not in place: multiple overdue filings at Companies House; significant discrepancy between the register and the cap table; legal remediation required

Q18. Is the PSC (Persons with Significant Control) register accurate, current, and consistent with the cap table?

2 — Fully in place: PSC register maintained and updated after each round; consistent with the cap table and Companies House filing; all PSC thresholds correctly assessed 1 — Partially in place: PSC register exists but has not been reviewed since the last round; may not reflect current ownership post-option vesting 0 — Not in place: PSC register has not been maintained; inaccuracies relative to Companies House; legal and compliance risk that investors will require remediation

Q19. Are all shareholder agreements, subscription agreements, and articles of association filed and accessible in the data room?

2 — Fully in place: complete set of corporate documents filed in the data room; all versions of articles, SHA, and subscription agreements since incorporation 1 — Partially in place: most documents available but some early agreements are missing; reconstruction from memory or email records will be required 0 — Not in place: significant gaps in corporate documentation; investors cannot verify the historical cap table without extensive legal reconstruction

Q20. Is a cap table management tool (Carta, Capdesk, or SeedLegals) used for all option grants, so that the register updates automatically?

2 — Fully in place: all option grants issued and tracked through a dedicated platform; electronic acceptance by optionholders; register is always current 1 — Partially in place: platform in use but some historical grants were issued manually and have not been migrated; partial coverage only 0 — Not in place: all option grants managed via Word documents and email; no dedicated platform; administrative risk is high as the company scales

Your Score

0 / 40

Answer questions above to see your result

Priority action: Cap table issues identified during diligence become legal costs and time delays. A single area scoring 4 or below — particularly share class complexity or Companies House accuracy — should be addressed with legal counsel before any fundraising conversations begin.

Cap Table Health Framework

How to Use This Framework

Assessment

Area 1: Share Class Simplicity

Area 2: Option Pool & ESOP

Area 3: Investor Rights

Area 4: Ownership & Dilution Modelling

Area 5: Data & Administration

Clean up your cap tablebefore investors find the issues.

Clean up your cap table
before investors find the issues.