Should New Hires Request to See the Cap Table in a Pre-Funding Startup?

Requesting to see the cap table at a pre-funding startup can be a strategic move for new hires who are in key roles or negotiating equity compensation. This article explores the appropriate context and the potential benefits and risks involved in such a request.

Understanding Ownership

New hires, especially those in senior or key roles, may want to understand their potential equity stake and how it fits into the overall ownership structure of the company. This information is crucial for the new hire to evaluate the long-term potential of their investment in the startup. Knowing the cap table can provide insights into the company's valuation and the dilution of their ownership.

Negotiating Compensation

If the compensation package includes equity, it is entirely reasonable for a new hire to ask for clarity on the equity offered and its implications for future funding rounds. Understanding the terms, such as the strike price, the current 409A valuation, and the total shares outstanding, can help the new hire negotiate a fair and equitable deal. Transparency in these matters can lead to a better understanding and alignment of interests between the new hire and the startup.

Transparency and Trust

A request for the cap table can foster transparency and build trust between the new hire and the company. By requesting this information, the new hire shows a willingness to be informed and a commitment to understanding the company's financial structure. This can strengthen the relationship and set a positive tone for the working relationship.

Company Policy and Culture

Startups have different cultures and policies regarding the sharing of information. Some may be open to sharing the cap table, while others may view it as sensitive or proprietary. It is important for new hires to consider the company's culture and policies before making this request. If the company is generally transparent, the new hire may find that the request is well-received. However, if the company is reluctant to share this information, the new hire should be prepared to respect the company's boundaries.

Timing and Approach

It is best to make the request for the cap table respectfully and at an appropriate time. Doing so during the offer negotiation process can be particularly effective. This timing allows the new hire to negotiate based on the information provided, without rushing the decision-making process.

The Risks and Considerations

While it is often appropriate for new hires to request the cap table, there are risks involved. Some founders and companies may view such requests as intrusive or as a challenge to their decision-making process. A new hire should be prepared for the possibility that the company may refuse to share this information. It is important to strike a balance between seeking transparency and respecting confidentiality.

Seeking Clarification on Equity

Seeing the cap table is unusual, but asking questions about the equity that you are receiving is common and appropriate. Key questions to ask include:

What is the strike price? What is the current 409A valuation? What was the last post-money valuation? How many total shares are outstanding? What percentage of ownership are you receiving?

Understanding these details can help the new hire make informed decisions and ensure that they are receiving fair compensation for their skills and contributions.

Striking a Balance Between Transparency and Confidentiality

There is a balance to be struck between "transparency" and "confidentiality." Requesting to see the cap table of others can be seen as too intrusive, but it is reasonable to ask about your own equity. Founders may be willing to share this information, but they may also be reluctant. Over-sharing can lead to comparisons and dissatisfaction among team members. Therefore, it is important to request fair compensation based on your skills and contributions, rather than comparing compensation packages with others.

Conclusion

While it is often appropriate for new hires to request to see the cap table at a pre-funding startup, the context and company culture should guide how and when to make this request. By understanding the ownership structure and negotiating compensation transparently, new hires can build trust and form a strong foundation for their professional journey within the startup.