Cap Table Interview Questions: The Math Behind Every Term Sheet

A €20M pre-money company raises €5M. Ask an unprepared candidate for the investor's ownership and a common answer is 25%, five divided by twenty. The correct answer is 20%, five divided by twenty-five, because ownership is always set against the value of the company after the new money arrives, not before.

That single substitution, pre-money for post-money, is the most common technical error in a venture interview, and it is only the first of several. Cap-table and term-sheet mechanics are the one genuinely technical part of a venture interview, tested with real arithmetic rather than vocabulary, and every mechanic below is worked with numbers you can check by hand.

The Formulas Every Cap-Table Question Reduces To

Almost every cap-table question an interviewer asks is a variation on one of the rows below. Knowing the formula is necessary but not sufficient; the trap is almost always in which number goes in the denominator.

Pre-Money vs Post-Money: Ownership Set Against What Comes After

Pre-money valuation is what the company is worth before the new investment lands. Post-money valuation is pre-money plus that investment, and every investor's ownership percentage in the round is calculated against post-money, never pre-money.

Take the opening example in full. A company is valued at €20M pre-money and raises €5M. Post-money valuation is €20M + €5M = €25M. The investor's ownership is €5M ÷ €25M = 20%. Using €20M as the denominator instead gives 25%, a five-point error that compounds through every later calculation, because option pools, pro-rata rights and liquidation preferences all reference the correct post-money percentage.

The Option Pool Shuffle: One Headline Number, Two Founder Outcomes

Almost every priced round creates or tops up an employee option pool, and the question that decides who actually pays for it is whether the pool is sized before or after the round closes. This is the "option pool shuffle," and it is the classic trap in a cap-table interview question because it changes the real deal without changing the headline valuation at all.

Two Ways to Size the Same Pool

Take a company with 8,000,000 founder shares and no pool. The term sheet: €20M pre-money, €5M new investment, a 15% option pool sized as a percentage of the fully diluted post-money capitalization.

Pool sized pre-money, the standard convention. The pool's shares are added to the share count before the round is priced, so the pool and the founders share the pre-money side of the table while the investor's post-money percentage is set independently. Working the share count: the investor still gets exactly 20% (€5M of €25M post-money), the pool still gets exactly 15%, and founders are left with the remainder.

Pool sized post-money, the rarer alternative. The pool is created only after the round closes, so it dilutes every post-closing shareholder proportionally, founders and the new investor alike, rather than founders alone.

Same pre-money valuation, same investment, same 15% pool target, and founders are worth €750,000 more under the second structure, entirely because of where the pool sits. Investors overwhelmingly prefer the first structure precisely because it protects their percentage no matter what the pool ends up costing everyone else.

€16.25M

founders' stake

pool sized pre-money, the standard convention

€17.0M

founders' stake

pool sized post-money, the rarer alternative

Dilution Across Rounds: Why a 12% Stake Does Not Stay 12%

Ownership erodes with every financing round even when nothing goes wrong, because each new round issues fresh shares that the existing capitalization table did not previously own a claim on. A seed investor who holds 12% after the seed round is not still holding 12% by the time a company reaches Series C, unless they specifically bought more shares along the way.

Model a company that raises three follow-on rounds after seed, each pricing new investors at roughly 20% of the post-money company, and a final round where new investors take a touch under 22%.

Without writing another check, the seed investor's stake is halved, from 12% to 6%, purely from three ordinary, non-down rounds. Holding the line at 12% the whole way through costs an additional €8.76M in follow-on capital across three rounds, calculated at each step as ownership percentage multiplied by the new round's total size.

Seed

12.0%

Series A

9.6%

Series B

7.68%

Series C

6.0%

No down round, no misconduct, just three ordinary financings. Buying back to 12% at every round costs an extra €8.76M across the sequence.

Pro-Rata Rights: What Actually Buys Back the Dilution

A pro-rata right is a contractual option, not an obligation, letting an existing investor buy enough of a new round to hold their percentage flat. The formula is simple: pro-rata allocation equals the investor's current ownership percentage multiplied by the new round's total size.

CRV's own example makes the mechanic concrete: an investor holding 8% who wants to keep that stake through a $5M Series A needs to write a further $400,000 check, exactly 8% of $5M. The NVCA model term sheet typically grants this right only to "Major Investors," commonly defined as those holding one to two percent of fully diluted equity or writing a check above a stated minimum, so a small angel check often carries no pro-rata right at all.

• Pro-rata is a right to maintain a percentage, not a right to buy more of it. It caps out exactly at the investor's existing stake; it does not let them increase their ownership in a later round.
• It costs real, growing capital at each round, since round sizes tend to increase, meaning the dollar check required to hold a fixed percentage grows even though the percentage itself does not.
• It is distinct from anti-dilution protection, which adjusts a conversion price automatically and requires no new capital; pro-rata requires writing an active check.

Liquidation Preferences: "Or," Not Automatically "And"

A liquidation preference determines what a preferred investor is paid before common stockholders at an exit, and the single mechanical distinction interviewers test most is whether the structure is participating or non-participating.

A 1x non-participating preference entitles the investor to the greater of their fixed preference, typically their original investment, or their pro-rata share of proceeds as if converted to common. It is an "or": the investor takes whichever number is larger, never both. A 1x participating preference is an "and": the investor takes the fixed preference first, and then still shares pro rata in whatever proceeds remain, a structure sometimes called double-dipping because it pays more across most outcomes.

Running the Numbers at Three Exits

The difference between the two structures only becomes real at a specific exit value, which is exactly the kind of question a cap-table interview asks. Take an investor holding a 1x preference on €8M invested, convertible into 30% of the company as-converted, at three different outcomes.

Preference Stacks: Pari Passu, Stacked Seniority, and Quiet Repricing

A company with several priced rounds has several liquidation preferences stacked on top of each other, and how they interact at a disappointing exit depends on seniority, a term separate from the participating-or-not question above. Two structures dominate.

Pari passu means every series of preferred shares the same priority. If proceeds are not enough to cover every preference in full, the available cash splits proportionally across the preference amounts. Stacked seniority means a later round sits senior to earlier ones, and a senior round is paid in full before a junior round sees anything at all.

Take a company with a €2M seed preference, a €6M Series A preference, and a €15M Series B preference, a €23M total stack, sold for €12M.

Nothing in the seed or Series A paperwork changed between these two rows. What changed is a seniority term negotiated later, by a different round, and it is enough to reprice the earlier rounds from real money to zero. This is why an interviewer may ask what a new round's terms do to existing investors, not only to the founders.

Anti-Dilution: Broad-Based Weighted Average vs Full Ratchet

Anti-dilution protection adjusts an existing investor's conversion price when a company later raises money at a lower price per share, a down round. Two structures dominate, and they produce very different outcomes from the identical down round.

Full ratchet resets the investor's entire original position to the new, lower price, as if they had invested at that price from the start. Broad-based weighted-average, the market convention in the large majority of venture financings as described by Cooley GO and Morrison Foerster, uses a formula that also accounts for how much new, cheaper stock is actually being sold.

The formula: new price = old price × (A + B) ÷ (A + C). A is shares outstanding before the new round, B is what the new money would have bought at the old price, and C is the new shares actually issued.

Take a Series A investor holding 2,000,000 shares bought at €5.00 (€10M invested), against 8,000,000 total shares outstanding including founders and an existing pool. A down round raises €9M at €3.00 a share, issuing 3,000,000 new shares.

Figures rounded to one decimal place. Full ratchet moves roughly six additional points of ownership from founders to the Series A investor compared with weighted average, on the identical down round, which is exactly why founders push back hard whenever full ratchet appears in a term sheet and why weighted average is standard, though standard here still means a negotiated convention rather than a legal default.

SAFEs and Convertible Notes: Why Conversion Can Surprise a Founder

A SAFE, Simple Agreement for Future Equity, converts into equity at a future priced round, typically at whichever is more favorable to the investor of a valuation cap or a discount to the new round's price. Y Combinator's post-money SAFE states the mechanic directly: ownership sold equals the investment divided by the valuation cap, which is why a $500,000 investment at a $6.7M cap converts to roughly 7.5% and a $1M investment at the same cap converts to roughly 15%.

The post-money structure, which Y Combinator introduced in 2018, is deliberately non-dilutive to other SAFEs: each SAFE's percentage is fixed at signing and does not shrink when another SAFE is added later. That protects each individual investor, but it is exactly why a founder juggling several SAFEs can be more diluted than they expected. The percentages do not offset each other; they simply add.

What Happens When a Priced Round Finally Arrives

Founders in this example are already down to 70% before a single priced round happens. Series A then raises €5M at a €20M pre-money valuation, €25M post-money, giving the new investor 20% and diluting everyone else, founders and SAFE holders alike, by the same 0.80 factor.

A founder who tracked each SAFE in isolation, "only 8%, only 10%, only 12%," is often startled to find themselves at 56% after what felt like three modest checks and one priced round.

A discount works alongside, or instead of, a cap: it prices the SAFE below whatever the next priced round charges everyone else, rather than below a fixed ceiling. On a 20% discount SAFE with no cap, if the priced round later sells shares at €2.00, the SAFE converts at 20% less, €1.60, buying the same investment amount more shares than a new investor gets for the same money.

A convertible note works on the same cap-and-discount logic but is structured as debt: it accrues interest and carries a maturity date. Outstanding principal plus accrued interest converts into equity, producing slightly more shares at conversion than an otherwise identical SAFE.

ESOP Mechanics: Sizing the Pool and Paying for the Refresh

An option pool, sometimes called an ESOP in casual startup usage though the two terms differ in a strict legal sense, is a block of shares a board authorizes and reserves for future employee equity grants. Sizing conventions vary by stage and shift with the market, so treat any specific range as a snapshot rather than a rule.

Reporting on 2025 Carta and PitchBook transaction data put typical pools at roughly 10-15% at pre-seed and seed, topping up to 15-20% at Series A, and refreshing at smaller increments, often 10-15%, at later stages.

Who pays for a pool differs depending on when it is created. At company formation, the pool is carved entirely out of the founders' shares, because no other shareholder yet exists.

At a later priced round, a "refresh" that tops the pool back up is instead added to that round's pre-money share count. That cost is shared by every existing pre-money shareholder in proportion to their stake, not by founders exclusively, though founders typically still hold the largest single stake early on and so still absorb the largest absolute amount.

• A fresh pool at formation always comes from founders, because the pre-money cap table at that point contains nothing else.
• A refresh at a later round is shared proportionally across everyone already on the pre-money side of the table, existing investors included, not just the founders.
• The refresh mechanic is the same shuffle as the original pool, just applied to a cap table that now has more names on it.

A pool that is never fully granted also matters at exit. Unallocated pool shares are usually still counted in the fully diluted share count that a valuation and an exit price are measured against, so a company that reserved a large pool and granted only part of it is effectively holding value back from every shareholder, not creating it for employees who never received a grant.

What Interviewers Actually Ask, and How to Show Your Work

Cap-table questions in a venture interview rarely arrive as a standalone quiz. They surface inside a case, embedded in a term sheet or a scenario, and interviewers are listening for a process as much as a final number.

Candidate accounts across the process converge on a small set of recurring prompts: walk me through what happens to my ownership in this round; where does the option pool sit; what does a 2x participating preference actually pay out at this exit; what happens to the seed round if the Series C prices below the Series B.

These questions are reported by candidates and hiring pages rather than published by any single fund as a fixed script, so treat the exact phrasing as representative rather than guaranteed. What repeats across accounts is the underlying test: can a candidate hold three or four moving pieces, valuation, pool, preference and seniority, in their head at once without collapsing them into one number.

A strong answer, said out loud, tends to move through the same four steps in order:

1. State which number you are dividing by before you divide. Naming post-money, or explicitly naming pre-money and correcting for it, signals the arithmetic is deliberate rather than guessed.
2. Ask where the option pool sits before computing anything. A candidate who asks this unprompted, when handed a term sheet with a pool mentioned, is showing they know the shuffle exists.
3. Separate the preference question from the seniority question. Participating versus non-participating and pari passu versus stacked are two different mechanics, and conflating them produces confidently wrong answers.
4. Say the final number, then say what would change it. Naming the exit value or the pool size that would flip the answer shows the arithmetic was understood, not memorized.

The Four Errors That Cost Candidates the Most Points

How to Drill This Until It Is Reflexive

Cap-table arithmetic rewards repetition more than reading. In rough order of return on time invested:

1. Redo every worked table above with your own numbers. Change the pre-money valuation, the pool size, or the exit value, and confirm you land on a coherent answer each time.
2. Practice the option pool question specifically, since it is asked unprompted more than any other. Given any pre-money valuation and pool size, be able to state founder, pool and investor ownership without a calculator.
3. Build one multi-round dilution table from scratch, tracking a single investor's stake with and without pro-rata across three rounds.
4. Memorize the "or, not and" line for liquidation preferences, then run at least three exit values against it until the conversion threshold becomes obvious rather than calculated.
5. Learn the weighted-average formula well enough to state it from memory, even if you would reach for a calculator to finish the arithmetic in the room.
6. Say every answer out loud before the interview, not just on paper. The interview tests whether you can narrate the logic under mild time pressure, not whether you can eventually reach the right number alone.

The Bottom Line

Every mechanic here traces back to one habit: naming the correct denominator before doing anything else. Post-money, not pre-money. The pool's actual placement, not the headline pre-money number. The specific exit value, not a vague sense of "the preference matters." Seniority, checked separately from the participating-or-not question. Get the denominator right at each step, and the arithmetic that follows is mechanical rather than mysterious.

None of this changes as market conventions shift, because it is not a market convention. It is what post-money means, what a pool sized before pricing does to a share count, and what "or" versus "and" mean in a term sheet. A candidate who can rebuild every table here from a blank page is not memorizing venture capital. They are doing arithmetic an interviewer already knows how to check.