Cap Table 101: Outstanding vs. Fully Diluted Ownership Explained
Written By Haley Kopp
When a founder says they own 60% of their startup, the next question should be: “Is that 60% of the outstanding shares or on a fully diluted basis?”
Understanding the difference between outstanding ownership and fully diluted ownership is one
of the most critical cap table concepts founders need to grasp.
Outstanding Ownership: The "Right Now" View
Outstanding ownership refers to your percentage of the shares you currently own out of the total shares that are currently held by all company stockholders.
Let’s say your company has:
● 6 million shares issued and outstanding, and
● You own 3 million of those.
That means you own 50% of the company on an outstanding basis. But that number doesn't account for potential future issuances of shares.
Fully Diluted Ownership: The "What If" Scenario
Fully diluted ownership shows your stake in the company if all potential shares were issued,
including stock options, warrants, SAFEs, and convertible notes.
Using the same example, let’s say your cap table now looks like this:
● 6 million shares issued and outstanding;
● 1 million shares reserved in an option pool;
● 1 million shares issuable under SAFEs and convertible notes; and
● You own 3 million shares.
Now, instead of 6 million shares as in the example above, there are actually 8 million shares on
a fully diluted basis (the outstanding shares + the option pool + the SAFEs/Notes).
Your 3 million shares now represent 37.5% ownership on a fully diluted basis, not 50%.
Why It Matters
Fully diluted ownership is the number that VCs, acquirers, and new hires care about, because it
reflects the true potential dilution of the cap table. Outstanding ownership indicates what has
been issued today and it is crucial for understanding who receives stockholder rights as of the
current moment. However, fully diluted ownership provides a realistic picture of where you stand
in the long term.
Founders often miscalculate their ownership and can lose control of the company by not
planning around fully diluted figures.
Pro Tip for Founders
Whenever you're raising money, issuing options, or granting equity to a co-founder, make sure
you're working off the fully diluted cap table. It’s the best way to avoid surprises and negotiate
from a position of clarity
Bottom Line:
Outstanding ownership tells you what’s on the table today. Fully diluted ownership tells you who
gets how much cake once it’s fully baked.
Haley Kopp is a corporate lawyer focused on representing start-ups and small companies in formations, venture capital, angel investor financings, mergers and acquisitions, and general corporate matters.
Haley's diverse experience gives her a practical approach to solving complex business issues, whether guiding companies through financing rounds or corporate transactions. Her office can be reached at (619) 512-3652.
This guide is meant for educational and informational purposes only and should not be considered legal advice. It is essential to consult with an attorney or other advisors regarding all legal and other important matters.
