Series A Preparation: The Cap Table & Equity Audit Founders Ignore

# Series A Preparation: The Cap Table & Equity Audit Founders Ignore

We've watched Series A fundraises derail over equity issues that should have been caught months earlier.

Investors don't just check your metrics, your product, or your team. They forensically examine your cap table—the record of who owns what percentage of your company. And here's what most founders don't realize: the errors, ambiguities, and oversights in equity records are among the most expensive problems to fix during due diligence.

This isn't about having perfect documentation from day one. It's about conducting a thorough **series A preparation** audit of your cap table before investors do it for you, when the cost of fixing problems is measured in legal fees, time delays, and dilution disputes rather than a few hours of work.

In this guide, we'll walk through what investors actually check in your equity records, where founders consistently trip up, and exactly how to prepare your cap table for Series A scrutiny.

## Why Investors Obsess Over Your Cap Table During Series A Preparation

Your cap table tells a story. It shows who you've hired, what you've promised them, how disciplined you've been with equity, and whether there are hidden liabilities lurking beneath clean-looking metrics.

When VCs dig into equity records, they're asking:

- **Are all equity grants properly documented?** Verbal promises, handshake deals, and "we'll formalize it later" arrangements create legal exposure.
- **Do vesting schedules make sense?** Cliff periods, acceleration on change of control, and founder equity terms reveal a lot about your sophistication and risk management.
- **Are there any unresolved equity claims or disputes?** A departing co-founder with unclear equity, a consultant who claims to own equity, or an advisor paid in questionable equity arrangements can sink a round.
- **What's the dilution trajectory?** If your current funding structure suggests the investor will own less than expected after their round, you have a problem.
- **Is there dead equity floating around?** Unvested options, warrants, or grants to people no longer with the company create complexity.

We worked with a Series A-stage SaaS company that had an 18-month delay in closing their funding round—not because of valuations or terms, but because a co-founder from three years prior had an informal, unsigned equity agreement that nobody had formally addressed. The legal cleanup, negotiation, and documentation took months and ultimately cost the company over $50,000 in legal fees.

That's a cap table problem masquerading as a legal problem.

## The Cap Table Audit: What Series A Preparation Really Requires

Before approaching investors, you need to know exactly what's in your cap table and whether there are any hidden issues. Here's how to audit it systematically.

### 1. Map Every Equity Grant Ever Made

Start with the comprehensive list—and we mean *everything*:

- **Founder equity splits** (with documentation of how it was divided and any vesting agreements)
- **Employee options** (with grant dates, strike prices, vesting schedules, and status of each grant)
- **Early equity hires or advisors** (especially the informal ones—consultants paid in equity, early advisors with unclear terms)
- **SAFEs, convertible notes, or warrants** that will convert into equity at your Series A
- **Stock options that have been exercised** or are currently outstanding
- **Any founder equity cliffs or acceleration provisions** (especially if they're asymmetrical between founders)

If this list takes you more than 30 minutes to compile because you're hunting through emails, chat logs, and old documents, you already have a cap table problem.

Investors will ask for this information in a standardized format. We recommend building a comprehensive spreadsheet that includes:

| Name | Grant Type | Grant Date | Vesting Schedule | Vesting Status | Shares Granted | Shares Vested | Strike Price | Status |
|------|-----------|-----------|------------------|-----------------|----------------|---------------|--------------|--------|
| | | | | | | | | |

If you don't have this ready, you're not prepared for Series A.

### 2. Validate Every Vesting Schedule

Vesting is where cap table errors compound. A typical tech company uses a 4-year vesting schedule with a 1-year cliff (no shares vest for the first 12 months, then 25% vest, and the remainder vests monthly over the remaining 36 months).

But variations are common, and they matter:

- **Founder equity**: Often 4-year vesting with no cliff (or a shorter cliff), reflecting earlier risk-taking
- **Early hires**: 4-year vesting with 1-year cliff (standard)
- **Later hires**: Sometimes accelerated vesting or adjusted terms
- **Advisors**: Often 2-3 year vesting with varying cliff periods

Investors will scrutinize whether your vesting is reasonable and competitive. Too much founder equity that hasn't vested creates questions about retention and incentive alignment. Too little equity given to early employees raises retention concerns.

**Red flags we see during Series A preparation:**
- Founder equity that's 100% vested from day one (suggests inexperience)
- Highly asymmetrical vesting between co-founders (suggests unresolved tension or poor planning)
- No vesting schedules documented at all (the most dangerous situation)
- Advisor equity with no vesting (creates long-term obligations to people no longer involved)

### 3. Reconcile All Equity to Your Capitalization Table

Your cap table should mathematically add up. Every share or option should be accounted for.

We've seen:

- **Rounding errors** that create tiny discrepancies (usually fine, but should be documented)
- **Phantom shares** where someone believes they own equity, but it was never formally granted
- **Duplicate grants** where the same person has overlapping option grants from different time periods
- **Signed agreements that don't match cap table records** (the agreement says 100,000 shares vesting over 4 years, but the cap table shows 95,000 shares)

Before Series A investors arrive, you need to:

1. Print out every equity agreement you have (employment offers with equity, option grant agreements, advisory agreements, SAFE documents, etc.)
2. Cross-reference each agreement to your cap table
3. Flag any discrepancies
4. Resolve them with the relevant parties

This sounds tedious, but it's essential. Investors will do this comparison anyway—you're just finding and fixing problems before they do.

### 4. Identify All Contingent Equity Obligations

Contingent obligations are equity promises that haven't converted into equity yet but will at some point.

These include:

- **SAFEs and convertible notes** from seed rounds (these will dilute equity at Series A)
- **Outstanding warrants** (often issued to investors or service providers)
- **Deferred equity grants** (rare, but happens when equity vesting is pushed into the future)
- **Performance-based equity** (if you've promised equity for hitting certain milestones)
- **Acceleration provisions** that trigger on change of control (these affect future dilution)

For each contingent obligation, you need:
- The current amount
- The conversion mechanism and timeline
- The fully-diluted ownership impact
- Whether it's reflected in your fundraising math

We worked with a founder who had three different SAFEs from seed investors, each with slightly different valuation caps. When they modeled their Series A, they hadn't accounted for the combined dilutive impact of all three SAFEs converting. Their expected ownership stake was off by 8 percentage points—a significant error that would have been caught by investors anyway.

### 5. Check for Legal Documentation Gaps

Investors won't just verify the numbers; they'll verify the legal documentation.

**Documentation you should have:**

- **Signed equity agreements** for every grant (option grant agreements, RSA/RSU agreements, etc.)
- **Stock option plan documentation** (your 2008 or 2010 plan, board resolutions authorizing the plan)
- **Board resolutions** for all equity grants above certain thresholds
- **Signed founder equity agreements** (especially if equity was re-vested or adjusted over time)
- **All SAFE and convertible note documents**
- **Employment agreements** that reference equity terms
- **Advisor agreements** with clear equity terms (or explicit statements that no equity was issued)

If you're missing signed agreements, especially for early employees or co-founders, you have a legal exposure. You'll need to get them signed retroactively, which is awkward but necessary.

### 6. Audit for Equity Claims or Disputes

Before investors arrive, you need to know whether any former employees, advisors, or partners believe they own equity.

Common situations we see:

- **A co-founder who left** but never signed formal equity documentation, and you're unclear about whether they have a claim
- **An early advisor** who was told they'd receive equity but never did, and now wants it (or wants to claim they own it)
- **A former employee** whose vesting agreement is ambiguous about what happens when they were laid off
- **A consultant or contractor** who was paid in equity but the terms were never documented

Before Series A, talk to legal counsel about:
- Whether there are any potential disputes in your equity records
- What the exposure and cost to resolve would be
- Whether you need to settle or formalize any informal arrangements

It's much better to identify and resolve these proactively than to have them surface during investor due diligence.

## Common Cap Table Mistakes That Kill Series A Momentum

### Mistake 1: Assuming Verbal Agreements Are Good Enough

They're not. Investors want documentation. If equity was promised verbally but never formalized, you have a problem.

We had a founder who gave early equity to an advisor based on a conversation over coffee. No written agreement. Months later, the advisor's interpretation of the deal was different from the founder's. During Series A due diligence, this became a liability.

**Fix**: Get all equity documented in writing, even retroactively. It's awkward but necessary.

### Mistake 2: Inconsistent or Missing Vesting Schedules

Some founders vest equity continuously (a share every day). Some use monthly vesting. Some have cliff periods, some don't.

When vesting schedules are inconsistent across employees, investors question whether you understand equity best practices.

**Fix**: Adopt a standard vesting schedule (4 years with 1-year cliff is standard tech) and apply it consistently. Document any exceptions clearly.

### Mistake 3: Forgetting About Fully-Diluted Ownership

Many founders quote their Series A valuation and ownership percentage without accounting for all the SAFEs and convertible notes from seed that will convert.

If you tell an investor you'll own 60% of the company post-Series A, but SAFEs convert and dilute you to 50%, that's a credibility problem.

**Fix**: Calculate your fully-diluted cap table for Series A (including all SAFEs, convertibles, and option pool assumptions). Know this number cold.

### Mistake 4: Not Reserving Enough for Your Employee Option Pool

Series A investors will ask how much equity you're reserving for future hiring. If your answer is vague, they'll push you to reserve 15-20% of post-Series A equity for future grants.

That's a significant dilution that many founders don't account for in their fundraising math.

**Fix**: Build out your hiring plan for the next 2-3 years and model the equity cost. Reserve that amount in your cap table.

### Mistake 5: Asymmetrical Founder Equity Without Clear Documentation

If one co-founder owns significantly more than others, or if equity was adjusted over time, investors will ask why.

Without clear documentation of how decisions were made and agreed upon, this creates questions about co-founder dynamics and retention.

**Fix**: Document the rationale for any asymmetrical equity. If equity was adjusted for fair reasons (someone worked longer, invested more capital, etc.), make that clear.

## Your Series A Cap Table Checklist

Before you start investor conversations, use this checklist:

✓ **Comprehensive cap table** built in a spreadsheet that accounts for 100% of equity ownership

✓ **Every equity grant documented** with signed agreements (employment offers, option grant agreements, SAFE documents, etc.)

✓ **Vesting schedules verified** for accuracy and reasonableness

✓ **Fully-diluted cap table** calculated that includes all SAFEs, convertibles, and warrants

✓ **Employee option pool reserved** and sized based on hiring plans

✓ **Contingent obligations identified** and their dilutive impact quantified

✓ **Legal review completed** by a startup-experienced attorney (or at least flagged for review)

✓ **Any equity disputes or claims resolved** or formally documented as pending

✓ **Cap table reconciliation completed** so that every share or option ties to documentation

✓ **Board resolutions and plan documents** in place and available

If you can't check every box, you're not ready for Series A, and you'll discover that during investor due diligence—which is far more expensive and disruptive.

## Building Cap Table Discipline Beyond Series A

Once you've audited and cleaned up your cap table, the goal is to avoid ever being in this position again.

This requires:

- **Process discipline**: Every equity grant gets documented in writing before shares are issued or options are granted
- **Cap table ownership**: Assign someone (often your CFO or finance person) to be the cap table owner and maintain it quarterly
- **Board review**: Cap table should be reviewed at every board meeting to ensure completeness
- **Annual audit**: Even after Series A, review your cap table annually for consistency and accuracy

We often work with founders through this audit process as part of their [Series A Financial Operations: Building the Right Infrastructure](/blog/series-a-financial-operations-building-the-right-infrastructure/). A fractional CFO can lead this work without the legal complexity, and it frees you up to focus on product and fundraising.

## Next Steps: Preparing Your Cap Table for Series A

If you're planning a Series A within the next 6-12 months, start with a cap table audit now. Don't wait until you're in the final fundraising sprint.

The audit usually reveals issues that take weeks or months to resolve legally. Finding them early means fixing them on your timeline, not on investors' timelines.

At Inflection CFO, we help founders audit cap tables and prepare the financial and equity infrastructure for Series A. If you'd like a free assessment of your cap table readiness, [reach out to schedule a brief call](https://inflectioncfo.com/contact). We'll review your current cap table, identify any gaps, and give you a roadmap to prepare.

Your Series A round is too important to derail over equity documentation. Get this right.