Great companies get discounted – or delayed- because ownership is unclear. If your cap table is a patchwork of SAFEs, convertibles, side letters, and undocumented promises, buyers assume pain and price for it. A cap table detox is the cheapest way to protect value before an LOI.
1) Collect every instrument—no exceptions
Pull term sheets, signed agreements, board minutes, option grants, advisor promises, and any emails that change economics. Missing paper is not a small problem; it’s a blinking red light for buyers.
2) Build the “ground truth” table
List each holder, instrument type, issue date, price/cap, discount, interest (if any), and conversion mechanics. Then model ownership today and at closing under realistic scenarios (primary raise, secondary sale, or both). Make the math reproducible in a clean spreadsheet.
3) Harmonise conversion mechanics
Misaligned caps and discounts across instruments can create weird results and angry founders. Where you can, negotiate alignment on valuation caps or conversion discounts. It’s easier now than with a buyer watching.
4) Fix the option pool like adults
Decide on a post-money pool that fits your hiring plan and tell current investors how you’ll refresh it. Back-date nothing; minute everything. Write a simple option policy with vesting, exercise, and treatment on exit.
5) Kill the “phantom promises”
If key staff think they “have equity” based on a conversation, resolve it now: either paper an actual grant or record that no grant exists. Ambiguity becomes a fight when a buyer is in the room.
6) Clean up founder arrangements
Tidy loans, dividends in arrears, and undocumented reimbursements. Buyers hate surprises that look like value leakage. Document any non-competes or restraints for founders if they’ll stay post-deal.
7) Resolve board and consent mechanics
Know who must approve a sale, drag-along, co-sale, and ROFRs. If your shareholder agreement makes a clean deal impossible without corralling dozens of signatures, consider a pre-deal consent process with clear minutes.
8) Decide your narrative and write it down
Two pages, plain language: who owns what, why the structure looks as it does, what’s being fixed before signing, and what will be fixed as a condition to close. Buyers reward clarity; they punish mysteries.
9) Do a friendly pre-flight with counsel
Ask your lawyer to read the table like a buyer would. Where will diligence land first? Which consents are likely to be contentious? Better to hear it now than in a red-lined SPA.
10) Share the model with your CFO and keep it current
Lock version control. Every new instrument or promise updates the model and the minutes. If information drifts, trust evaporates.
Cap table work feels personal. It touches founder sacrifice, early believers, and promises to staff. Do the hard conversations early—privately—so the deal conversation can be professional. The outcome you want is simple: a buyer who believes the numbers and a team that feels respected.
Bottom line: A clean cap table doesn’t make your valuation; it protects it. Detox now and you’ll negotiate price—rather than apologising for arithmetic—when it matters most.
