A “cap table” or capitalization table details the equity ownership and debt obligations of the company. When a VC gives you a term sheet it will include cap table that reflects the post-investment ownership levels of key parties.

In order to prepare the term sheet you will need to provide the VC with your pre-investment (aka pre-money) cap table. This will enable them to make a proposal that balances all of the key considerations: their ownership and the ownership of the entrepreneurs.

When you send the VC a cap table, it’s best not to include a target post-investment (aka post-money) cap table. Here are a few reasons not to include a post-money cap table:

• It’s a bad way to start the negotiation, since it appears to be a passive aggressive mechanism for proposing the valuation.
• You may propose a lower valuation than a VC intended to offer.
• It makes you look uninformed about the fundraising process, since it is commonplace for VCs to make the first term sheet offer.

The only exception is that you may want to give guidance regarding the size of the option pool you believe should be in place post-financing. The VC will expect you to have an informed opinion on this subject given your assessment of the hiring and related equity compensation needs of the company.

With this one exception, though, the best strategy here is to provide a simple and clear cap table.