Cap Table Management — From Founding to Series A

#Why Early Design Is Critical for Your Cap Table

If two co-founders split equity 60/40 at incorporation without any formal agreement and then proceed to operate the business, dilution at each subsequent stage — SAFE conversion, option pool creation, Series A new share issuance — compounds on top of the previous ownership percentage. As rounds stack up, founders can lose voting power and economic interest without fully realizing it.

As more minority shareholders accumulate between funding rounds, obtaining shareholder consent becomes increasingly complex for Series A investors. In both the US and Korea, it is becoming more common for Series A term sheets to require 'cap table cleanup' as a precondition.

#Cap Table Changes by Stage — A Numerical Example

The table below shows how each shareholder's ownership percentage changes when two co-founders (A at 60%, B at 40%) raise seed funding via a post-money SAFE, create an option pool, and complete a Series A. The assumptions for each stage are listed below the table.

• Seed SAFE: post-money valuation cap ₩2B, investment ₩200M → ownership = ₩200M ÷ ₩2B = 10%
• Option pool: 10% created on a fully diluted basis after seed conversion → all existing shareholders diluted proportionally
• Series A: pre-money ₩10B, investment ₩2B → new share ratio = ₩2B ÷ ₩12B ≈ 16.7%

In this example, combined founder ownership falls from 100% at founding to 67.5% after the Series A. The beancount.io guide notes that if combined founder ownership drops below 20–25%, questions may arise about incentive alignment. The same guide reports a typical post-Series A founder ownership range of 38–50% — a US benchmark that may not translate directly to the Korean market.

#SAFE vs. Convertible Notes — How Each Changes Your Cap Table

The two convertible securities most commonly used at the seed stage are SAFEs (Simple Agreement for Future Equity) and convertible notes. Both convert into equity at a future round and change the cap table, but they differ in how they affect the founder's cash obligations and conversion timing.

A post-money SAFE fixes ownership at signing — calculated as 'investment ÷ post-money cap.' When multiple SAFEs convert simultaneously, pre-money SAFEs dilute each other within the same round, so you must calculate ownership on a fully diluted basis (including options, warrants, convertible notes, and SAFEs) to understand the true dilution.

#Option Pools — Legal Limits and Timing

Stock options (stock purchase rights) are a way to attract key early talent with future equity instead of cash compensation. The maximum amount that can be granted varies by entity type; the key limits applicable to startups are shown in the table below. Korean Commercial Act Article 340-2 may have been amended since 2018, so verify the current text directly at the National Law Information Center.

When an employee of a venture-certified company exercises stock options, gains up to ₩200M per year may be exempt from income tax. However, the exemption does not apply once cumulative gains per venture company exceed ₩500M, and it applies only to options granted on or before December 31, 2027 (Special Tax Treatment Control Act Art. 16-2). Verify that any amendments are reflected by checking the current text at the National Law Information Center.

The timing of option pool creation is also a negotiating variable. Cases have been reported where a Series A term sheet required a 15% option pool expansion, and founders successfully negotiated for this cost to come out of the pre-money valuation. Under a pre-money basis, the option pool cost is borne by existing shareholders (founders and prior investors); under a post-money basis, all shareholders share the cost.

#What Series A Investors Check in Cap Table Due Diligence

After a term sheet is signed, Series A investors request cap table documents item by item during due diligence. In addition to the cap table and shareholder register, monthly P&L, cash flow, use of proceeds, and key contracts are reviewed together. Accounting and tax review points also vary depending on whether new shares are issued, existing shares are transferred, or conversion rights are involved.

1. Fully diluted cap table: include all common shares, preferred shares, convertible notes, SAFEs, and unexercised options
2. Match between shareholder register and corporate registry: correct any unreflected shareholders before due diligence
3. Vesting provisions: written vesting terms must exist for co-founder and early employee shares
4. Minority shareholder voting design: whether drag-along trigger conditions (price floor, triggering party, deadline) have been negotiated
5. Approved stock option list: options verbally promised without board approval carry a risk of delaying closing

A drag-along clause forces founders to sell their shares when a majority of investors vote to sell. A tag-along clause guarantees minority shareholders the right to sell on the same terms when a majority shareholder exits. In Korean practice, drag-along clauses are often treated as poison pills, so the price floor and triggering party must be explicitly negotiated at the term sheet stage.