Your cap table is the only spreadsheet that follows you from incorporation to exit – and dilution compounds in ways founders consistently underestimate. Three rounds of “reasonable” dilution plus two ESOP top-ups can quietly move founders from 100% to under 50% before Series B. This guide walks the arithmetic through a realistic four-round journey – angel, seed with a note converting, Series A with a pool top-up – and the hygiene rules that keep a cap table diligence-proof. Model your own numbers on the free dilution calculator and the downloadable Excel that accompanies this guide.
The only three formulas you need
New investor stake = investment ÷ post-money, where post-money = pre-money + investment. Everyone else dilutes by the factor (1 – new stakes issued): a founder at 60% before a round that issues 20% of the post-round company holds 60% × 0.80 = 48% after. Price per share = pre-money ÷ fully-diluted pre-round shares – and “fully diluted” is the phrase that matters: it counts the ESOP pool and every instrument that will convert (notes, CCPS on an as-converted basis). Every dispute we see in practice traces to one party computing on issued shares and the other on fully diluted.
A four-round journey, worked
| Event | Founders | Angels | Note→/Seed VC | Series A VC | ESOP |
|---|---|---|---|---|---|
| Incorporation | 100% | – | – | – | – |
| Angel: ₹1.5 cr at ₹8.5 cr pre (15%) + pool set to 10% post | 75.0% | 15.0% | – | – | 10.0% |
| Bridge: ₹2 cr CN (25% discount, ₹30 cr cap) | 75.0%* | 15.0%* | (note outstanding) | – | 10.0%* |
| Seed: ₹8 cr at ₹32 cr pre; note converts at the discount price (0.75 × 32 = ₹24 cr, below the ₹30 cr cap) | 55.4% | 11.1% | 6.2% (note) + 20% (VC) | – | 7.4% |
| Series A: ₹40 cr at ₹160 cr pre, pool topped to 12% post (pre-money) | 40.7% | 8.1% | 4.5% + 14.7% | 20% | 12.0% (rebuilt) |
Three lessons hide in that table. The note converted at the discount price (₹24 crore effective < the ₹30 crore cap) – whichever is lower governs, and stacked notes with different caps convert at different prices in the same round. The pool was rebuilt pre-money at Series A: that top-up came out of everyone except the new investor – founders funded most of it, which is why pool size belongs in the valuation negotiation (the term-sheet decoder shows the haircut arithmetic). And founders at 40.7% after A is a healthy outcome – achieved only because each round stayed within norms; one extra 25%-dilution round would put them below 30% with two rounds still to go.
Ownership targets by stage (Indian norms)
Working checkpoints investors themselves use: founders above ~75% after angels, 55–65% after seed, 45–60% after A, and above ~35% into B. These are not rules – capital-intensive sectors run lower – but a cap table far below the band prompts every later investor to engineer founder top-ups (more dilution for others) or to pass. Protect the band by raising the right amounts at the right stage (stages guide), bridging on notes instead of mispriced equity, and resisting oversized pools.
The waterfall: why percentages are not payouts
At exit, preferences pay before percentages. Using the table above: sale at ₹120 crore with every VC holding 1x non-participating – the Series A investor’s preference is ₹40 crore vs as-converted ₹24.4 crore, so they take the ₹40 crore preference; seed’s ₹8 crore preference loses to as-converted ₹17.6 crore, so seed converts. The remaining pot reshuffles accordingly – founders’ 40.7% of the company becomes materially less than 40.7% of ₹120 crore. Every exit scenario needs the waterfall run, not the percentage multiplied – the downloadable Excel below does it mechanically, and participating preference (off-market, but it appears) makes the gap dramatic. Exit taxation stacks on top: 12.5% LTCG, the buyback regimes, and the FA-2026 promoter surcharge are mapped in the capital gains guide.
Cap-table hygiene: the diligence rules
One master file, reconciled to statutory filings: every line traceable to a PAS-3, every ESOP grant to a scheme and letter, every transfer to an SH-4/demat instruction and FC-GPR/FC-TRS where foreign. Show fully-diluted alongside issued. Version-control it – date-stamped snapshots at every event – and never let two versions circulate (the classic diligence confidence-killer flagged in the DD checklist). Round percentages to two decimals and keep share counts as the source of truth; percentage-first cap tables accumulate rounding drift that surfaces as real disputes at exit.
Cap table getting complicated?
My Cloud Accountant rebuilds and reconciles cap tables to filings, models rounds and waterfalls, and keeps the master file diligence-ready.
Talk to an expertFrequently Asked Questions
Should the ESOP pool be counted in fully-diluted shares even if ungranted?
Yes – investors price on fully diluted including the whole authorised pool, granted or not. That is precisely why an oversized pool is founder dilution: you are charged today for options that may never be granted. Size the pool to an 18-month hiring plan and top up later.
How do multiple convertible notes convert in one round?
Each at its own effective price – the lower of its cap-implied price and its discounted round price. Three notes with caps of ₹20/35/50 crore convert at three different prices, and the combined dilution only becomes visible when modelled together – do it before signing the third note, not after. See the note guide.
What happens to a departed co-founder’s shares?
Whatever the vesting and leaver clauses say: unvested shares lapse or transfer back at face value; vested shares stay unless a buyback right exists. A departed founder holding 20% dead equity is among the most common reasons Indian seed deals get restructured – resolve it before raising, not during.
Do SAFEs/iSAFEs appear on the cap table before conversion?
iSAFEs structured as CCPS are already shares – on the table from day one, shown as-converted. Convertible notes are debt until conversion but must appear in the fully-diluted view at their expected conversion effect. Hiding instruments “below the table” is how founders surprise themselves at the next round.
Last reviewed: August 2026. Arithmetic per standard venture conventions; ownership bands are practitioner-observed Indian norms. Companion tools: dilution calculator + cap-table Excel (CalcGuru).