> tpl_stv_008
Cap Table and Dilution Scenario Model
Venture capitalization table and dynamic dilution modeling framework tracking founder common shares, post-money SAFEs / convertible notes, employee stock option pools (ESOP unallocated vs issued), priced preferred rounds (Series Seed/A/B), and exit liquidation preference waterfalls.
Capitalization table and dilution simulator modeling SAFE conversions, option pool expansions, and exit waterfalls.
Important Tech Document Template & Operational Notice
TinyCTO.tv Tech Document Template Notice: This template is a general educational and operational starting point. It is not legal, tax, accounting, investment, procurement, regulatory, security or certification advice. Requirements vary by jurisdiction, organization, contract and risk. Review and adapt it with qualified professionals before relying on it.
Problem Solved
Founders sign uncoordinated SAFEs with varying valuation caps, agree to investor option-pool "shuffle" demands, and fail to calculate conversion dilution, waking up after Series A with their ownership slashed below 25%.
When to Use
- •Modeling equity dilution across multi-tranche convertible SAFEs, note conversions, and priced preferred equity rounds
- •Calculating the impact of pre-money vs post-money option pool expansion requirements from lead VC investors
- •Simulating exit payouts and net proceeds across common and preferred share classes using liquidation preference waterfalls
When NOT to Use
- •For overarching operating budgets, P&L forecasts, and monthly cash burn rate calculations (use TPL-STV-005)
- •For corporate statutory share certificates, minutes of board meetings, and register maintenance (use TPL-GOV-018)
5 Template Sections & Structural Outline
Structuring initial capitalization: Founder Common Stock, 4-year vesting with 1-year cliff, 83(b) election records, and authorized vs issued share counts (typically 10M shares at inception).
Modeling conversion dynamics: Valuation Caps, Discount Rates (typically 20%), Most Favored Nation (MFN) clauses, and interest accrual on convertible debt.
Calculating Series A mechanics: Pre-Money Valuation / Pre-Round Fully Diluted Shares = Original Issue Price (OIP). Tracking shares issued to incoming investors and new ownership splits.
Modeling the Employee Stock Option Pool (ESOP): sizing the unallocated pool (typically 10-15% post-Series A) to fund critical executive hires over the next 18-24 months.
Simulating exit scenarios ($10M to $500M): evaluating 1x Non-Participating vs Participating Preferred, liquidation seniorities (pari passu vs tiered), and calculating net dollar payouts to founders.
Completion Instructions
Independent Review Checklist
- All mandatory sections completed
- No secrets or passwords included
- Executive sponsor sign-off obtained
Cap Table and Dilution Scenario Model - Worked Case Study
Fictional Entity: Generative Enterprise Knowledge Graph Platform
Real-world production case study demonstrating complete operational adoption for Generative Enterprise Knowledge Graph Platform.
- •Engineered multi-SAFE conversion and Series A cap table model preventing 8% excess founder dilution
- •Negotiated option pool expansion from 15% down to 10.5% based on bottom-up executive hiring roadmap
- •Simulated exit liquidation waterfall across 5 acquisition price scenarios, protecting common equity value
Frequently Asked Questions
What is the "Option Pool Shuffle" and how does it affect founders?
The Option Pool Shuffle occurs when an incoming VC insists that a new employee stock option pool (e.g. 10-15%) be created *pre-money* (out of the existing cap table). This forces existing common shareholders (founders) to absorb 100% of the dilution, effectively lowering the true valuation the investor is paying.
Why did Y Combinator switch from Pre-Money SAFEs to Post-Money SAFEs?
With Pre-Money SAFEs, multiple SAFE holders diluted each other and founders in complex, circular mathematical ways that made it impossible to know exact ownership until the priced round. Post-Money SAFEs fix the ownership percentage at the time of signing (e.g. $1M on a $10M cap = exactly 10%), providing complete clarity.
What is a liquidation preference waterfall?
A liquidation preference waterfall models how cash proceeds from an acquisition or IPO are distributed among share classes. Preferred investors with a 1x preference get their original investment back first before common shareholders receive a single dollar, unless preferred shares convert to common.
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Authoritative Sources
- Y Combinator Post-Money SAFE Documents and User GuideY Combinator • OFFICIAL REQUIREMENT
- NVCA Model Legal Documents: Certificate of Incorporation and Investors Rights AgreementNVCA • OFFICIAL REQUIREMENT
- IRS Internal Revenue Code Section 409A: Nonqualified Deferred CompensationInternal Revenue Service • OFFICIAL REQUIREMENT