Fundraising delays don’t usually start during the pitch. They start during due diligence, when your investor’s lawyer asks for a copy of your share register and cap table — and what comes back doesn’t match, doesn’t add up, or raises more questions than it answers.
A cap table (capitalisation table) is a record of who owns what in your company: shares, options, convertible instruments, and anything else that represents or could become equity. In Australia, the statutory foundation is the register of members required under sections 168 and 169 of the Corporations Act 2001 (Cth). But the cap table most investors want to see goes well beyond the statutory minimum. It’s a complete picture of current and potential ownership — and if it’s messy, it signals that other parts of the business might be too.
Here are the problems we see most often, and how to avoid them.
The Share Register and the Cap Table Are Not the Same Thing
The first source of confusion is the distinction between the two.
The register of members is a legal requirement. Under section 169 of the Corporations Act, every company must maintain a register that records the names and addresses of its members, the shares held by each member (including the date they were entered on the register and the date they ceased to be a member, if applicable), and — for companies with multiple share classes — the class of shares held.
Proprietary companies also have notification obligations under Part 2C.2 of the Act. When there’s a change to the member register, the company must notify ASIC within 28 days (section 178D), and if the share structure changes — new classes issued, for example — that must be notified too (section 178C).
The cap table is a broader concept. It includes everything on the share register, plus options (granted and unexercised), convertible notes, SAFEs, warrants, and any other instrument that could convert into equity. It typically shows ownership on both a current basis and a fully diluted basis — meaning what ownership would look like if every convertible instrument and option were exercised.
If you’re only maintaining the statutory register, you’re meeting your legal obligations. But you’re not giving yourself (or your investors) the full picture.
Problem 1: The Spreadsheet That Diverged
Most early-stage startups maintain their cap table in a spreadsheet. That’s fine — you don’t need dedicated cap table software when you have two founders and a handful of shareholders. The problem starts when the spreadsheet diverges from reality.
Common causes: a share transfer that was agreed but never reflected in the register. An option grant that was approved by the board but never recorded. A convertible note that converted on its terms, but nobody updated the spreadsheet to show the new shares issued. A vesting schedule that lapsed, but the unvested options weren’t returned to the pool.
By the time an investor asks to see the cap table, you’re reconciling three different sources of truth — the ASIC extract, the share register, and the spreadsheet — and they don’t agree.
The fix: Every time equity changes hands or a new instrument is issued, update everything at once: the statutory register, the ASIC notification (if required), and the cap table spreadsheet. Treat them as a single process, not three separate tasks. If you issue shares or grant options, update the cap table the same day.
Problem 2: Dead Equity
“Dead equity” is equity held by someone who is no longer contributing to the business — a co-founder who left in the first year, an early advisor who disappeared, a friend-and-family investor who holds a disproportionate stake relative to their contribution.
Investors care about dead equity because it affects alignment. If 15% of the company is held by a former co-founder who left two years ago and has no ongoing involvement, that’s 15% that isn’t motivating anyone currently building the business. It also means the remaining founders are effectively working for someone who isn’t.
The most effective protection against dead equity is a vesting schedule on founder shares. If a co-founder’s shares vest over four years with a one-year cliff, and they leave after six months, the unvested shares can be bought back (or, depending on how the arrangement is structured, may never have been issued in the first place). Without vesting, a departing co-founder walks away with their full allocation, and there’s nothing you can do about it — short of negotiating a buyback, which gives them all the leverage.
We’ve written before about how to structure co-founder arrangements, and vesting is central to that structure.
Problem 3: Untracked Convertible Instruments
SAFEs and convertible notes are popular at the pre-seed and seed stage because they defer the question of valuation. But deferring the valuation doesn’t mean deferring the cap table impact. Every SAFE and convertible note is a future claim on equity, and if you’re not tracking them properly, you (and your investors) won’t know what the company’s ownership will look like after conversion.
The specific problem we see is founders who treat convertible instruments as “just debt” or “just a contract” and don’t include them on the cap table at all. Then they enter a priced round, the instruments convert, and suddenly the founders’ ownership is materially lower than they expected — because they never modelled the dilution.
The fix: Include all convertible instruments on your cap table from the moment they’re issued. Model the conversion scenarios — what happens if they convert at the cap? What if they convert at a discount to the next round’s price? What does the fully diluted cap table look like? You need to be able to answer these questions before an investor asks them.
Problem 4: ESOP Allocation Without a Plan
Investors expect to see an employee share option plan (ESOP) — or at minimum, a pool set aside for one. In Australian venture deals, a 10–15% option pool on a fully diluted basis is standard, and investors typically expect it to be established (or topped up) before their investment, so the dilution from the pool comes from the founders, not from the new investor.
The cap table issue arises when founders tell investors there’s “an ESOP” but what actually exists is a vague intention to create one. There’s no board-approved plan, no pool allocation, no documentation of grants that have already been made, and no clarity on vesting schedules or exercise prices for existing grants.
An ESOP that exists in conversation but not on paper creates problems at two levels. First, it makes the fully diluted cap table impossible to calculate accurately. Second, individual grants made without a formal plan may not qualify for the concessional tax treatment available under Division 83A of the Income Tax Assessment Act 1997 (Cth), meaning employees may face unexpected tax liabilities.
The fix: If you’re going to promise an ESOP to investors, actually create one. Have the plan rules drafted, get board approval, allocate the pool, and document every grant — including the exercise price, vesting schedule, and expiry date. Each grant should appear on the cap table.
Problem 5: Too Many Shareholders
The Corporations Act limits proprietary companies to 50 non-employee shareholders (section 113). That’s a hard cap, and exceeding it means the company must either convert to a public company (with all the additional compliance obligations that entails) or restructure its register.
Even well short of 50, a fragmented cap table with dozens of small shareholders creates practical problems. Every share issue, every shareholders’ agreement amendment, every consent resolution requires chasing signatures from people who may hold 0.5% of the company and aren’t particularly engaged. That friction slows everything down — especially fundraises, where the incoming investor typically wants all existing shareholders to sign a deed of accession to the new shareholders’ agreement.
The fix: Be deliberate about who goes on your register. If friends and family want to invest small amounts, consider whether a single holding vehicle (a trust or a special purpose company) makes more sense than putting each individual on the register directly. For future rounds, set minimum investment thresholds to avoid further fragmentation.
What Investors Actually Want to See
When an investor’s lawyer reviews your cap table during due diligence, they’re checking for specific things:
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Consistency. Does the cap table match the ASIC extract? Does the ASIC extract match the share register? Do the share numbers add up?
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Founder alignment. Do the founders hold enough equity to be motivated? Are founder shares subject to vesting?
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Clean conversion maths. If there are convertible instruments outstanding, what does the post-conversion ownership look like? Has the company modelled this?
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ESOP clarity. Is there an option pool? How much has been allocated? How much remains? Are individual grants documented?
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No surprises. Are there any shareholders, option holders, or noteholders that the founders haven’t mentioned? Dead equity? Unusual side arrangements?
A clean cap table that answers all of these questions without follow-up is a signal that the founders are on top of their corporate housekeeping. A messy one is a signal that due diligence is going to be painful — and for some investors, that’s reason enough to walk away.
Start Early, Update Often
Cap table hygiene isn’t something you can retrofit the week before a term sheet lands. It’s a habit — one that starts at incorporation and continues through every share issue, option grant, convertible note, and transfer.
Keep one authoritative source of truth. Update it every time something changes. Reconcile it against your ASIC records at least quarterly. And when you’re approaching a fundraise, do a full audit: make sure every number matches, every instrument is documented, and every entry on the register has the paperwork to support it.
If your cap table needs a cleanup before your next raise, or you need help structuring an ESOP or convertible instrument properly, get in touch. You can also read our guides on co-founder agreements, liquidation preferences, and cross-border fundraising for more on getting your corporate house in order before investors come knocking.
