Cap Table Cleanup

Cap table cleanup is the pre-financing process of resolving stockholder ambiguities, missing signatures, expired options, and inconsistencies before investor diligence reveals them. The cleanup covers improperly granted options, undocumented promises of equity, lost stock certificates, and other inconsistencies in the company's capitalization records, typically done in the 4-8 weeks leading up to a priced round and one of the most-overlooked but most-impactful pre-financing activities. It is the difference between a smooth diligence process that closes on schedule and a contentious one where issues surface at the worst possible moment.

The common issues that surface in cap-table cleanup:

• Missing IP-assignment agreements from early contractors or founders, creating ownership ambiguity over the codebase.
• Improperly issued stock or options where the documentation doesn't match what was actually agreed (handshake equity that was never formally granted, missing board approvals).
• Expired or unexercised options for departed employees that should have been canceled but weren't, creating uncertain dilution exposure.
• Outstanding promises of equity to advisors, contractors, or early employees that weren't formally documented but exist as commitments.
• 83(b) elections that were never filed for founders, creating massive tax issues that need disclosure and potentially remediation.
• Lost stock certificates that need to be replaced with affidavits of loss.
• Stockholder agreements that were never signed by all parties or were signed in inconsistent forms.

The cleanup process: typically led by corporate counsel in coordination with the founder, the cleanup involves systematic review of all equity-grant documentation, identification of issues, and resolution either by curative action (getting missing signatures, filing missed elections, formalizing handshake commitments) or disclosure (acknowledging issues in the financing documents so they're not surprises). The 2020s reality: cap-table software (Carta, Pulley, AngelList Stack, Capshare) has reduced the frequency of cap-table mess at the well-managed startups that use it from day one. The companies most likely to have messy cap tables: those that scaled hiring before formalizing equity processes, those that used multiple counsel over their early years, and those that made handshake equity promises without follow-through.

What founders get wrong: Waiting until fundraise diligence to discover cap-table issues. The discoveries always slow down the financing, sometimes meaningfully, and the resolution under deadline pressure is much more expensive than the same work done proactively. Quarterly cap-table reviews catch issues when they're small; pre-financing reviews catch them when they're load-bearing.

Related: Cap Table · Due Diligence · Term Sheet · Closing Conditions

FAQ

What is cap table cleanup?
The pre-financing process of resolving stockholder ambiguities, missing signatures, expired or improperly granted options, undocumented promises of equity, lost stock certificates, and other inconsistencies in the company's capitalization records before investor due diligence reveals them. Typically done in the 4-8 weeks leading up to a priced round.

What issues commonly surface in cap-table cleanup?
Missing IP-assignment agreements from early contractors, improperly issued stock or options, expired options for departed employees, undocumented equity promises, missing 83(b) elections, lost stock certificates, stockholder agreements not signed by all parties or signed in inconsistent forms.

How do I avoid needing major cap-table cleanup?
Use cap-table software from day one (Carta, Pulley, AngelList Stack, Capshare) and do quarterly reviews with corporate counsel. Check that every grant is properly documented, every 83(b) filing is in the file, every IP assignment is signed, and every departed employee's options are properly canceled. Proactive maintenance is dramatically cheaper than retroactive cleanup.