The Silent Spreadsheet That Can Make or Break Your Startup
Most Indian founders obsess over pitch decks, valuations, and growth metrics.
Very few obsess over their cap table—until it’s too late.
That single spreadsheet quietly decides:
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How much of your company you’ll actually own after funding
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Whether investors trust your governance
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How attractive your startup looks to senior hires
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And how painful (or smooth) future rounds will be
If you misunderstand it early, every funding round compounds the damage.
This guide breaks down cap table basics for Indian founders—without legal jargon, without fluff, and with real examples you’ll actually recognise.
What Is a Cap Table (And Why Investors Track It Obsessively)
A Capitalization Table, or Cap Table, is a living record of who owns what in your startup.
(For a formal definition, see Investopedia’s explanation of cap tables.)
It lists:
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Founders’ common shares
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ESOPs (Employee Stock Option Plans)
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Investors and their preferred shares
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Convertible instruments like SAFEs and notes
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Ownership percentages before and after dilution
Venture capital investors (VCs) track cap tables closely because it shows:
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Founder skin in the game
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Future dilution risk
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Alignment between founders, employees, and investors
A messy cap table is a red flag—even if your business looks strong.
This is why most VC due diligence checklists (like those shared by Y Combinator and Sequoia India) start with ownership clarity.
Start With Founder Equity (Get This Right or Regret It Later)
Initial Equity Split Between Founders
Most startups begin with a simple split:
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60/40
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50/50
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70/30
There’s no “correct” number—but there is a correct logic.
Founders: initial equity split should reflect:
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Time commitment
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Role criticality
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Opportunity cost
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Prior IP or capital contribution
Y Combinator explicitly warns against equal splits done only to “avoid conflict” because they create bigger issues later.
Vesting Is Non-Negotiable
Even between friends.
In India, investors expect vesting schedules for founder equity—typically:
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4 years total
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1-year cliff
If a founder leaves early, unvested shares return to the company. This protects everyone who stays.
You’ll find similar structures recommended in Indian startup legal guides by AZB, Khaitan & Co, and Trilegal.
Pro tip: Founders without vesting scare investors more than founders with smaller stakes.
ESOP Pool: The Dilution You Should Plan For Early
Issuing ESOPs (Employee Stock Option Plans) isn’t optional if you want serious talent.
Indian startups often set aside 5–15% of their cap table as an ESOP pool.
This range is commonly referenced by Venture Intelligence India and top startup law firms.
Why this matters:
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ESOPs reduce founder dilution later
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Investors almost always ask for an ESOP pool before funding
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If you don’t plan it early, founders absorb the shock later
Typical ESOP Mistake
Founders say:
“We’ll create ESOPs after funding.”
Reality:
Investors adjust the valuation assuming the ESOP pool already exists—meaning you pay for it anyway.
For Indian compliance and taxation, founders should also review MCA guidelines and Income Tax Act provisions on ESOP taxation.
Plan it upfront.
Understanding Investor Shares: Common vs Preferred
Founders usually hold common shares.
Investors usually get preferred shares.
Preferred shares often come with:
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Special voting rights
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Dividend preferences
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Liquidation preference (who gets paid first on exit)
This doesn’t mean investors control your company—but it does mean economics and control aren’t always equal.
Most term sheets in India follow structures similar to NVCA model documents, adapted locally by Indian VCs.
Your cap table must clearly show:
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Share classes
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Rights attached to each class
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Ownership percentages post-investment
Clarity here prevents ugly surprises during exits or down rounds.
Convertible Instruments: SAFEs, Notes, and Warrants
Early-stage Indian startups often raise money using:
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SAFEs
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Convertible notes
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Warrants
These don’t show immediate dilution—but they will convert later.
Your cap table must track:
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Amount invested
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Conversion triggers
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Valuation caps
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Discount rates
Ignoring convertibles gives you a false sense of ownership.
Y Combinator’s SAFE documentation is a good reference for understanding conversion mechanics.
Founder equity dilution occurs when these instruments convert, not when the money hits your bank account.
How Dilution Actually Works (A Simple Example)
You own 100% of your startup.
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You create a 10% ESOP pool → You now own 90%
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You raise a seed round selling 20% → You drop to ~72%
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ESOPs get allocated → You drop again
Nothing went “wrong.”
This is how startups scale.
The problem isn’t dilution.
The problem is not knowing it’s coming.
A good cap table shows:
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Current ownership
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Fully diluted ownership
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Post-future-round scenarios
Why a Cap Table Is Crucial for Managing Equity in India
In India, issuing equity comes with:
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Legal compliance
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ROC filings
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ESOP taxation considerations
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Investor due diligence
You can cross-check these requirements via the Ministry of Corporate Affairs (MCA) portal.
A cap table is crucial for managing equity distribution because it:
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Prevents accidental over-dilution
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Keeps founders aligned
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Builds investor confidence
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Simplifies audits and fundraising
If your cap table needs explaining, it’s already a problem.
Common Cap Table Mistakes Indian Founders Make
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Splitting equity equally “to avoid conflict”
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Skipping vesting between co-founders
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Forgetting ESOP pools until investors demand them
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Not tracking SAFEs and convertibles properly
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Using outdated spreadsheets across teams
Each mistake compounds over time—and shows up painfully during term sheet negotiations.
Practical Action Steps for Founders
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Start with a clean founder equity split and vesting
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Create an ESOP pool early (even if unallocated)
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Track fully diluted ownership, not just today’s numbers
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Update your cap table after every equity event
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Review it before every fundraise—not after
Many founders eventually move from spreadsheets to tools recommended by VC-backed accelerators, but the logic must be right first.
Final Thought: Cap Tables Aren’t About Math. They’re About Control.
Your cap table isn’t just a document.
It’s a reflection of:
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Power
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Incentives
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Trust
Founders who respect it early stay in control longer.
Those who ignore it end up asking uncomfortable questions at the worst possible time.
If you’re building something serious, treat your cap table like a core product asset—not admin work.
