Fully Diluted Cap Table

What is a fully diluted cap table?

Fully diluted cap table (German: voll verwässerte Beteiligungsübersicht) refers to the ownership table that allocates to each shareholder and each holder of share rights their shares on a fully diluted basis. It means the cap table on a fully diluted basis. Fully diluted means that all rights that may later lead to shares or to a claim to the proceeds are also counted. Besides the company shares (Geschäftsanteile) according to the shareholder list, the table therefore shows virtual shares, the unallocated pool, conversion rights and option rights of third parties in separate columns and combines them into a total percentage.

The overview is a working document of the company. It is needed for every funding round, for the data room and for the distribution of proceeds at an exit, and builds on the general cap table. Which rights count towards the basis is determined by the definition in the contracts (fully diluted); the overview translates this definition into figures per person and instrument. Multiplying its total number of shares by the price per share gives the valuation of the round (fully diluted valuation). The definition thus says what is counted, the overview shows the result, and the valuation turns it into an amount in euros.

Structure of the fully diluted cap table

A reliable overview separates the legal and the economic view instead of mixing them in one column. The following structure is widespread:

• Shareholders and holders: each person with company shares or share rights in a row of their own, investors grouped by funding round.
• Company shares: nominal amounts and serial numbers as in the shareholder list, plus the percentage of the share capital, which, absent a deviating rule in the articles of association, is also the voting percentage.
• Virtual shares and options: allocated shares per person, separated into vested and not yet earned portions, with base price and allocation date.
• Unallocated pool: a row of its own, so that it remains visible how many shares are still available for future commitments.
• Conversion and option rights: convertible loans and option rights of third parties with the assumed conversion price and the resulting number of shares.
• Totals and percentages: shares on a fully diluted basis per row and the fully diluted percentage, alongside entry price and amount invested per investor.

Formula: Fully diluted percentage = shares and share rights of a holder / total of all shares on a fully diluted basis

For the distribution of proceeds, preferential rights are added, above all the ranking and amount of the liquidation preferences and any anti-dilution clauses. Only with this information can the amount that falls to each row at a given sale price be calculated. This calculation is the subject of the waterfall analysis.

Pro forma overview for the funding round

Before a round, the overview is extended into a pro forma calculation, a calculation that shows the position as if the round had already been completed. It sets out the position before the round, the changes brought by the round and the position afterwards side by side. The changes include new company shares of the investors, conversion shares and a top-up of the pool. If the price per share is below that of the previous round (down round), compensation shares from anti-dilution protection are added. This pro forma overview is the calculation basis of the term sheet and later of the participation agreement.

If investors require a free pool of a certain size after the round, care must be taken in the negotiation that the already existing, not yet allocated portion is credited towards the target size. Only the difference is then topped up. Whether the top-up falls within the pre-money valuation and is thus borne solely by the existing shareholders is set by the term sheet.

Convertible loans enter at the conversion price that results from the terms of the round. If this price depends on the round price, price and number of shares are obtained only jointly; the overview solves this through an iteration or a closed formula. If several offers are on the table, a separate pro forma overview is calculated for each.

Maintenance and reconciliation with the shareholder list

The overview is reliable only if it is updated at every event: capital increase, assignment of company shares, allocation, lapse or fall-back of virtual shares, conversion and exercise of option rights. Every change is recorded with date and legal basis, and earlier versions are kept as versions.

For the company shares, the shareholder list filed with the commercial register is decisive. The corresponding columns must match it, including nominal amounts and serial numbers. Virtual shares are reconciled with the participation plan and the individual commitments, conversion rights with the loan agreements. Discrepancies between these sources regularly prompt queries in due diligence. In the data room, the overview is therefore kept in a version with a reference date, together with the shareholder list and the participation plan.

Worked example: fully diluted cap table before and after the round

Founder A holds 30,000 company shares with a nominal amount of EUR 1 each, Founder B 18,000 and a former seed-stage investor 12,000. The share capital is thus EUR 60,000. From the virtual programme, 3,000 shares are allocated, and a further 2,000 are freely available. A new investor wants to invest EUR 4.5 million and names a pre-money valuation of EUR 18 million on a fully diluted basis. A free pool of 10% after the round is required, the top-up of which is included in the pre-money valuation.

• Position before the round: 60,000 + 3,000 + 2,000 = 65,000 shares; Founder A 30,000 / 65,000 = about 46.15%, Founder B about 27.69%, seed investor about 18.46%, allocated virtual shares about 4.62%, free pool about 3.08%
• Post-money valuation: 18 + 4.5 = EUR 22.5 million; investor's percentage 4.5 / 22.5 = 20%
• Company shares and allocated virtual shares, together 63,000, stand after the round for 100% minus 20% minus 10% = 70%; total shares 63,000 / 0.7 = 90,000
• Free pool after the round: 10% of 90,000 = 9,000; the existing 2,000 are credited, 7,000 are topped up
• Investor: 20% of 90,000 = 18,000 new company shares
• Price per share: EUR 18 million / (65,000 + 7,000) = EUR 250; check: 18,000 × EUR 250 = EUR 4.5 million
• Position after the round, fully diluted: Founder A 30,000 / 90,000 = about 33.33%, Founder B 20%, seed investor about 13.33%, investor 20%, allocated virtual shares about 3.33%, free pool 10%
• Percentages of the share capital of EUR 78,000 after registration: Founder A about 38.46%, Founder B about 23.08%, seed investor about 15.38%, investor about 23.08%

The overview shows both views side by side: votes are distributed according to the shareholder list, the economic share according to the fully diluted percentage. Founder B holds about 23.08% of the votes, but 20% fully diluted. If the company is sold before the free pool is allocated, the 9,000 free pool shares generally receive no proceeds. Founder B's share of the proceeds before preferences and base prices would then be 18,000 / 81,000 = about 22.22%, that is, between the two values.

Crediting the existing pool has a measurable value. If the pool were topped up by 9,000 shares without crediting, the free pool would grow to 11,000 shares. The price per share would fall to EUR 18 million / 74,000 = about EUR 243.24. The value of Founder A's shares would then fall from EUR 7.5 million to about EUR 7.30 million.

Distinctions: fully diluted cap table, cap table and shareholder list

• Cap table: the umbrella term for the ownership overview, which can contain several views. The fully diluted presentation is the view on which rounds are calculated.
• Shareholder list: the legally decisive document under Section 40 of the German Limited Liability Companies Act (GmbHG), which shows only company shares and their holders. The fully diluted overview builds on it and adds the share rights.
• Shareholder structure: describes the legal composition of the group of shareholders, including holding companies and trust arrangements, not the calculation of percentages.
• Waterfall analysis: distributes an assumed sale price according to preferences and percentages. It requires a complete fully diluted overview.
• Fully diluted valuation: the valuation of the round as an amount in euros. It arises when the total number of shares from the overview is multiplied by the price per share.

Common mistakes

• Legal and economic view mixed. If company shares and virtual shares are in one column, voting rights and shares of proceeds can no longer be read off separately.
• Pool topped up without crediting. If the target size is created in addition to the existing free pool, the existing shareholders bear a dilution that is not necessary.
• No versions and reference dates. Without dated positions, it cannot be traced on what basis a term sheet or a contract was calculated.
• No reconciliation with the shareholder list. Deviating nominal amounts or missing assignments then only come to light in due diligence and delay the round.
• Vesting status not recorded. It does not count for the basis, but it does for payouts at an exit and for leaver cases. If it is missing, it has to be reconstructed from individual documents under time pressure.
• One calculation for several offers. Different pool requirements and definitions lead to different prices per share. Each offer needs its own pro forma overview.

Frequently asked questions

How is a fully diluted cap table prepared?

From three sources: the shareholder list for the company shares, the participation plan with all individual commitments for virtual shares and pool, and the loan and option agreements for conversion and option rights. In a spreadsheet, each instrument gets a column of its own, and the total column gives the fully diluted basis. The company is responsible, usually the management or the finance function; the law firm is responsible for the shareholder list and the contract documents.

Does the overview have to match the shareholder list?

In the columns for company shares, yes, including nominal amounts and serial numbers. The other columns go beyond the shareholder list, because virtual shares and conversion rights do not appear there.

How often is the fully diluted cap table updated?

At every event that changes shares or share rights. In addition, it is often reconciled with the shareholder list and the participation plan on fixed reference dates, for example at the end of a quarter.

Why do the voting percentage and the fully diluted percentage differ?

Because virtual shares, the free pool and conversion rights confer no votes but participate in the proceeds. A shareholder's voting percentage is therefore usually higher than their fully diluted percentage.

Is the vesting status shown in the overview?

Yes, as a separate item per person. The fully diluted basis counts allocated shares regardless of the vesting status, but for payouts at an exit and for employees leaving it is decisive.

The Roemer Capital view

In every funding round that Roemer Capital supports, the pro forma overview is the first set of calculations built together with the company. Each offer is calculated separately in it: price per share, pool top-up, conversions and the percentages that remain for the shareholders afterwards. This allows term sheets to be compared on the same basis.

For the data room, Roemer Capital prepares the overview with a reference date and reconciliation to the shareholder list and the participation plan, so that it is ready within 24 hours when an investor requests it. The shareholder list and the participation documents themselves are the responsibility of the company's law firm.