Raise & Exit Podcast: Episode 22: Bob Gillespie - Mastering Cap Tables for Startup Success

🎙️ Episode 22 is live! This time, we sit down with Bob Gillespie, a three-time founder, accelerator veteran, and “cap table expert,” to unpack the critical but often overlooked mechanics of equity, ownership, and investment structures.

If you’re building or backing an early-stage company, this episode is packed with actionable insights to help you avoid costly mistakes, structure your cap table properly, and prepare for funding or exits.

What do we cover?

1. Cap tables aren’t just paperwork. Bob explains why your cap table is a living, breathing document that requires diligence and ongoing updates—and what can go wrong if you neglect it.
2. Founder and early employee equity. Learn the importance of vesting, cliffs, share classes, and options to prevent “dead equity” and ensure fair ownership distribution.
3. Navigating accelerators and early-stage investors. Bob shares his insider perspective on setting clear goals, understanding option pools, and managing equity while scaling.
4. Avoiding the road to hell paved with good intentions. Missteps in equity allocation, informal promises, and friend-and-family investments can create long-term headaches. Bob breaks down professional approaches to safeguard your company’s structure.

🎧 Tune in for a candid, highly practical discussion on cap tables, founder dynamics, and professional approaches to raising capital.

Transcript

[00:00:32] Welcome to the latest episode of Raise and Exit podcast, and I have a question for you. What do you do when you've been a multi-time founder? You've had some exits. You've gone internationally to raise an accelerator, then sell it. Do you go and encounter a whole bunch of different crazy deals? What is next in your life? Well, for that, we have Bob Gillespie to give you the pathway for your future. Bob, welcome to the show. Please build on what I just started with as to why you have the "cap table expert" in the background. Please tell us a bit about yourself and what you're up to these days.

[00:01:07] Yeah, thanks for having me, man. So, yes, as you mentioned, three-time founder. And then I got into the investment side of things. I ran an accelerator in Turkey of all places, and I came back to the US, ran an accelerator there. We got purchased by a venture fund where I'm still at. I manage about 70 investments. But one thing that I really enjoy—I'm kind of a quant head, kind of a math dork, to be honest. And through my network, I just started to run across a lot of earlier stage stuff that were having massive problems with cap tables. I find that information out there is okay, but it's confusing. And lawyers will charge you an arm and a leg and quite honestly, I think a lot of times they don't even do it properly.

I've been doing cap table work for probably 15 years, and finally just went out and decided to put my stamp. I'm actually "cap table expert," encompasses the cap table work, and literally I've worked with hundreds of companies on all things equity structures, cap tables, and we can get into some of the wackiness that happens. But the most fun things that I do, I think, is work with a wide array of startups and hearing their ideas and kind of getting them to the next step in particular, in a professional, constructive fashion where they have the underpinnings of success in their structure. Because if you don't have that, it's really hard to be successful when your underpinnings of your structure are not good.

[00:02:32] Well, I think it's great. And I appreciate that kind of color that you went into, Bob. And I think not only are you looking at so many deals, but you're having to manage it with these investments as well. So in the spirit of our show, which is really around knowledge transfer and giving you insight that is months or years in advance, I'm going to start with an extremely basic question. When do you need—when do you not need to worry about a cap table? Under what conditions does it not matter if there's even a situation like that for somebody looking to raise or sell their business?

[00:03:04] I would say once you exited and the check is in the bank and you've distributed the funds, then you can tear up your cap table. But other than that, you better know that thing, and it better be a living, breathing document. I don't think that cap tables are something that you kind of build up front and they go in a drawer. I'm always kind of horrified when I get to somebody and I'm like, "Hey, where's your cap table?" And they're like, "Well, I kind of gotta put it together." I'm like, I don't know what that means, that you've got to put it together. Like, this should be every time something happens, it goes into the document and the document's going into a folder. And that folder ties to all the supporting documents.

You know, it's like backfilling your corporate minutes. "Oh, yeah. Yeah. We got together four years ago on the anniversary of founding the company." That's right. Yeah. And rolling it back. It's bad enough when you have the historic documents, but it's even worse when you're doing things like, "Well, I think I thought I gave Andrew some options, I don't remember. Do we sign it?" I think we have a document that says he has—this is a fun one—that we have a document that says that we gave Edgar 2%. Don't ever do this. We have a document that says Edgar gets 2% in options, but we never signed it. And I don't remember if we have a wet signature.

But I think you're getting into legalese—a verbal contract's a contract and a contract that's verbal is a contract. And now let's say that later on you raise some money and that 2% was supposedly diluted by the new money. Now Edgar comes in, waves a document at you and says, "I didn't get diluted because my document says 2%." So percentages are dangerous. There's all kinds of things that when you go try to reconstruct what happened to you in the past, it's very problematic. And when you do that, guess who loses?

[00:04:57] I think what you're pointing to, Bob, is one of the big challenges that is there. And I don't really want to emphasize this for our viewers and listeners—this is not like the "I have never started a company before and this is like a problem in my first few months or years." I have worked with companies that are over two decades old that have amazing cap table issues on them that ultimately impair the transaction because they need to be deconstructed. And I think, Bob, to what you're pointing to is you always need to be able to understand who owns your business.

Can you add a little bit to that on the ownership of the business as it is versus what the cap table facilitates because of trigger clauses—change in control provisions, exercising warrants—what are some things that people should be thinking about well in advance when they even start structuring the share capital of their business that they may not just think to think about?

[00:06:03] Yeah, let's talk—let's just take a really easy base structure. You know, it's me and you and we start a company and we decide to create a million shares. That's a nice little number of shares. And you're a little smarter than me, so we're going to give you 51%. So you got 510,000 shares, and I got 490,000 shares. Right. All right. Great. And maybe in our operating agreement, it says that, hopefully it says that. But also, do we have a share issuance agreement that says that you have 510, that we have that document, and then do we file our 83(b) election? Because we should be vesting and then that should all be sitting there—

[00:06:41] —Interrupt you right there, Bob, because you just said something that is so much missed by people, which is shares at issue or registration of the corporation versus shares that you grow into. There's a vesting period and some founders they just give shares to everybody at the beginning. But then there's actually shares that are there, especially in a multi-founder situation.

[00:07:03] Right. You got to stick around or you got to hit certain milestones to get that. So apologies for the interruption Bob, but I think that's a critical piece in a multi-founder company. And we're not even talking about investors yet. We're just talking about more than one founder.

[00:07:21] So let's say—and I'd aggregate this you and I, you and I are friends. But let's say that I did this with my brothers. Let's say my two brothers and I create a company. I would do this with my brothers. Okay, guys, you and I, Steven, Scott, me. We're going to create a company and we're all going to own a third. And we're in on this together and we're all with the best intentions. And we own a third, a third and a third, and we decide that we just give each other those thirds because we're brothers. Nobody's going to leave. Nobody's gonna do it. And then all of a sudden, one of the brothers, I don't know, his wife gets a job in China. I don't know what happens. And now he's like, "Hey, guys, I can't do this anymore. I have to move to China. But I own a third of the company. Great. Go get 'em. Go get 'em, fellas." And we're like, "Well, hold on a second. We're doing all the work. Are you going to give us some shares back?"

And also, let's say you take an investor and then they get their shares back. They don't give them to me and my brother. That goes back into the company. So now the investor's share also goes up by their pro-rata. That causes problems.

So what you should be doing, what everybody should be doing is when you create a company with other people in particular, I would recommend that you say, "Okay, we own a third, a third, a third. Great. And they're going to vest over three years." Let's make it relatively easy. That's 36 months. So what we might say is we're going to test each other for six months. You got to stick around six months. That's called a cliff before you own any of it. If we all get through the first six months, then now, while our name is on the ledger that we own a third, a third, a third, we only have true claim to one-sixth of that 33.33%. Then perhaps every quarter or every month—I kind of like every month—we get 1/30th of the remaining.

[00:09:05] I'm going to come back in on that one Bob because I think we are in an era of AI-aided development of companies, where that monthly cadence, I think is crucial. I would say you could even start making an argument where you may need to look at things from a weekly or a cumulative, like hours or share of time allocation contributed as informing that. And this thing is blowing up like crazy. Look at lovable, look at cursor. These are both companies that are less than a year old, have raised hundreds of millions of dollars and multi-billion dollar valuations. And if they did it right, and we don't know, but if they did it right, they would be having this vesting schedule be micro-monitored, because there was so much valuation change between Monday and Friday.

[00:09:50] You know, Edgar, the downside of not doing vesting—and I see it all the time—is in one of these that where they just explode in value, one of them could just say, "Great. All right, guys, I own a third. It's written down on a piece of paper. I'm out." And it's called dead equity, dead equity. And now I own a third. And you want to come and tell me that I don't own it? Well, I have a piece of paper that says I did. And the minute that I signed it, I owned it because it's a contract.

So if you don't vest, you're leaving yourself open to all kinds of problems of a founder deciding to take a powder for whatever reason and walking away with a giant chunk of equity. So what you would do is—here's another piece that gets missed, Edgar—not only if they're only there for a year out of the three, when they leave and they haven't vested those two years, you're going to buy back that equity at the initial purchase price, which means that it was nothing. You do not have to go to that person and say, "Well, you didn't—that's two-thirds of it. But now we have to buy two-thirds at hundreds of millions of dollars of value" because that's what your stock issuance agreement is going to set.

So vesting—I would say there's probably four giant things that I see that are massive problems. Debt equity on a cap table because of lack of vesting is one of the most common problems that I see.

[00:11:40] Yeah, I think is so valuable. And there's a whole other aside I'm not going to go in there too much. But I think if you could just add a little bit of color because one is around ownership and I think another one that is a lot missed in the structures is voting rights. So you can be on the cap table without voting rights. That is vesting versus you're going to have maybe a different class of shares that has the voting rights and have some non-equity value, but they have voting or directionality of the business. And I think that's another one that I notice is really missed by a lot of organizations—how do you handle decision making? Do you use the traditional directorship model, which is very hard to facilitate early stage in companies? And I would even say in large late organizations. So anything you just want to quickly add on that point before I want to shift the conversation to another aspect of your background and expertise?

[00:12:27] Certainly. I mean, I think that, you know, let's make it easy. I'm not a big fan of "I own common Class A shares and you own common Class B shares, and you don't vote and I do."

[00:12:41] So you're not a fan of the Snapchat model where investors own nothing and the founders get to call all the shots and change structure anytime they want?

[00:12:51] Well, I mean, I think any negotiation is going to have two components. There's a financial component. There's a control component that's going to be negotiated. I think that sometimes founders give up equity when they should have given up options. So I think that most founders, when they create their company, should be carving out an option pool, I'd say 10 to 20%. And then that is where they're going to carve that out. And then they're going to give that to early hires, to advisors, to board members, to people that can help them. But it doesn't clutter your cap table because they're not shares. They have the option. It's called an option for a reason. They have the option to buy a share in the future at a price we're going to set today.

So if the stock is worth a penny a share, we're going to write down Edgar has the ability to buy 100,000 shares for a penny in the future, but we're going to lock in the price today.

[00:13:51] I remember going through that with one of the companies that I'm involved in. I think I got it at like one half of one-hundredth of a penny or something like that. And I got like half a million shares for a thousand bucks when I exercised.

[00:14:00] Now there's—I don't want to go down the rabbit hole, but now you're gonna make me do that. Oh shoot. What have I done? The path to hell is paved with good intentions. Here we go.

When I'm speaking from the founder's standpoint, let's say that I give somebody 100,000 options. Early on, I, in my opinion, make the mistake of issuing those at the par value of the stock at the time. So let's just for fun say your par value is 0.001. Once you set that and I issue you 100,000 options at the strike price, the exercise price of .001—now think about that. When you fully vest, it's going to cost you 100 bucks to turn those into shares. You're always going to write a $100 check and take the chance that that's going to be something. But as a founder, I don't want you cluttering up my cap table. If you're going to come in and write me that check, I want you to have to put some skin in the game to turn them into shares, because when you're an option holder, maybe you're engaged. When you're a shareholder, we're married now.

So what I would be doing is I might say our founder shares have a par value 0.001. Do our 83(b) election. By the way, anybody listening here—if you don't know vesting and 83(b) election, you might want to enable somebody like me to help you through that.

And then when you set your strike price—throwing another industry term, you're using a 409A valuation that's going to set the fair market value of your common shares. You want to make that a fair market value where, for example, in my earlier discussion, Edgar, you and I had a million shares each, and I don't get out of bed unless I'm working on something that I think in my head with my knowledge base, with your knowledge base, your experience, you and I could have a board meeting and set the fair market value of our company to be, picking a number, $500,000.

Now, if I take a million shares divided by $500,000, that means that each share fair market value is worth 50 cents. Then we go and we issue the 100,000 shares at a 50 cent strike price. Now, that guy's got when he vests, he has a big decision to make on "Do I want to write a decent sized check in this company to actually take an equity stake in it?" So that's something that gets missed a lot—giving away these par value options because you're going to clutter up your cap table, because who's not going to write you a $100 check?

[00:16:26] I think what—there is so much in here that I think can be like a whole educational series.

[00:16:37] I've already done all the talks with it.

[00:16:38] Oh, beautiful. Okay, perfect. So folks, you want to learn more, go to Bob's site, the links below. But I think that part is so critical because if you look at the composition of most founders, even people that are in that ideal range of founding a company, which I think somebody did this longitudinal study—45 to 52 or something was like the ideal, highest success rate of being a founder or something like that. I know we romanticize the 21-year-old who dropped out of Stanford or Harvard or something like that, but the point I'm trying to get to is there's so much you need to know to run a business.

The way I kind of describe it is like being a founder—you have to become a master of many. It's not a jack of all trades, master of none. You have to become a master of many, because then you got to figure out how you delegate to other people. And I think one area a lot of people just mess up is like, "Oh, I went to register the company, I got myself 100 shares issued, blah, blah, blah. Oh, now I need investors. Well, crap, you've already got a problem that you've gone down the road of just because you tried to keep things simple."

And I think if you're going to go down the path of having multiple founders or having future investors or shareholders in your business, regardless of how you get there, cap table knowledge is something you need to be able to figure out for yourself. And I'm totally picking a team from fantasy sports—incomplete tables. But it's the same thing for your business. I don't think people really appreciate that aspect of it.

So I'm going to bring in an intersection of your past with the theme of today, which is around the cap table, and I would love for you to give some perspective on accelerators. You've launched one. They participate in investments differently. So how does an investor that is maybe working inside an accelerator space or has some money lined up, but they need a lead investor before the accelerator is going to cut a check—give me a sense of how do you balance expectations from an accelerator when you're an earlier stage company, and then how do you manage that from the equity that they get access to?

[00:18:39] Yeah. I think, you know, accelerators have become a bit of a cottage industry. I'll give you some opinion on this as well. I think that if I was a founder and I was looking at accelerators, you know, I think that there's—like in any business, there's some charlatans out there that are out there to try to get some equity and they're going to put you through some curriculum and you know what kind of value they bring. And I think that there's also very different stages of accelerators. There's incubator level accelerators that are kind of MBA or startup 101. You know, we're going to talk about your ideal customer profile. We're going to talk about your tech stack. We're going to talk about your sales, your go-to-market strategies, your drip campaign, your sales funnel. We're going to talk about kind of the startup, startup, startup.

There's that. Then there's accelerators that are kind of, you've maybe got a thing built, and now you need to get to the next stage. And there's more late stage accelerators where I play, which is more of the—I don't even know if I work at an accelerator anymore. I think I work at a scale-up. I think what we are is you have an idea, you built a thing, you got some traction. Now it's time to pour some gasoline on the fire and really scale it up.

So a couple things that I would think about if I was a startup looking at accelerators. One, I would think, regardless of what stage you are, I would think very defined—what are the 2 or 3 things that I want to accomplish in the accelerator? Define goals, not "We're going to go through. We're into mentorship. We're going to get some money. We're going to get some contracts." No, no. "I would like to get an expert on go-to-market strategy. I would like help with business development and fundraising," or "We're starting to scale up and I need help on hiring operational help," or "We had a founder leave, and our cap table's janky and this accelerator seems like they can help us with that kind of stuff."

I think that all of that is really helpful, but I think going into an accelerator with a very defined goal and then measuring what success looks like in that accelerator are giant ways to win, because I think a lot of people go to the accelerator and get to the end and they're like, "Well, it was, yeah, it was a good time? We met some people, but I can't put my finger on what we did."

We have one company that went through one of my programs and she's unbelievable. And she will monthly report to me "Here's how much MRR"—and she went through us for this—"You know, someone's coming in, ARR that I can directly attribute to your program." Unbelievable that you can do that.

So I think that's a big piece. And then just understanding, you know, is this an early stage accelerator or later stage? What am I getting? What does the curriculum look like? What kind of value do you think they bring?

And then—and this is just one guy talking—I think a lot of times, you know, there's a reason Techstars and Y Combinator are world-class. And here's why they're world class. You not only get their accelerator capital and their program, but if you can find one that also has a follow-on fund on top of that, then you can develop the relationship. You can show traction. You can show that you're winning. You can show that you're coachable. You can have success in the accelerator. And then it's awfully nice when they come back and say, "Wow, you're crushing it. Now you're going to go raise your Series Seed and you're going to raise 2 million bucks, and I've got half of that or whatever it might be."

I think that that can be a massive positive out of an accelerator. They have the ability to get in deeper with you. I think that you probably don't want an accelerator that says "We have a graduation. We do a demo day at the Marriott, and we have local investors come, and we have some cheese and some shitty wine, and then let us know if somebody invested in you. And good luck. Go get 'em, kid."

I think that, you know, you want an accelerator that is—this is what I said—you don't want a four month accelerator. You want a ten year relationship.

[00:22:45] Oh, that's such a great statement that I think you just put there because I think, you know, I look at some of the previous guests that we've had on the show, and they really espouse about being an A-team in terms of who they want to invest into. But I also look at it as you got to be able to figure out what type of a team you are, but you should also be able to then command great investments. And I think you have a point about accelerators in there as well.

Now, I joked previously about the path to hell is paved with good intentions, but I actually want to wrap up our session with each other around that because I think that there's so much cleanup of messes that come from a good intentions point of view. So could you go through a couple of kind of like these sound like well-intended ways that you've structured the business or you start up the dynamic with a co-founder or with an early investor that just—it gets your cap table—what are some early warning signs that you can share from some of your experience so that people can catch themselves and avoid making a mistake that some of the folks that you know have done?

[00:23:49] So, we talked about this before. I'm gonna use the word now, but if you're going to take a dollar from somebody, you got to be a fucking professional. And that means, like, I'll look at something like, you're not a professional. You didn't do this like a professional. You took money that somebody earned, and you jacked around with it. And I'm not saying you're not putting effort forth in your business, but I'm saying you didn't understand the structure that you took that money in under.

I'll give you two things where sort of the road to hell is paved with good intentions. One is, "Boy, my team, I really want to incentivize them. So, Sarah, I'm going to give you some options." And that's a good thing to do. Incentivize your team.

[00:24:31] Yeah, good intentions.

[00:24:33] But you didn't document it. You didn't create an option pool. You didn't create an option document. You didn't do any of the things that you need to do to be a professional to issue equity to people or options, the promise of equity. Now, think about Sarah. That's her life, man. That's her money. You're messing with her money and you didn't write it down. We don't do that as a profession. So I think that's one thing—just not documenting things, not putting things in folders, not getting signatures, not having your stuff super, super tight.

And then the other thing that I think that happens is, "I'm going to go get some money, some friends and family," and they're friends and family. "And I want to be good to them." So a SAFE—a SAFE is sort of the down-the-fairway, well-constructed vehicle now to take early stage money. Now if this was 2008 and you said, "Bob, I raised some money and it's got this goofy structure and we probably got to redo it because I didn't know what I was doing," okay, it was 2008. All this stuff wasn't already created. We didn't have sort of the path that the animals have walked on a million times.

Right now the animals have done that. We've walked down the path a million times. We know what structures work. We know the holes. We know the problems in the structures. We have the structure now professionally, as an industry, called a post-money SAFE note. We can argue post-money SAFE, pre-money SAFE, convertible note—I could argue till you cry, but I think with early stage investors.

You would say, "Well, my uncle who's a dentist who does pretty good came to me and we wanted to cut him a really good deal because he was giving us some money. And so we took a document, but then we put in this other thing, and then now on Tuesdays I have to wear a shirt with a kitten on it, and then on Thursday we have to buy pizza and send it to his thing." And they put on all this crap in a document.

And then let's pretend that even though you did that, you took your uncle's money and then you made a success out of it. You did something good. And now you come to a guy like me or some other professional investor, and now they want to put a million dollars in your company, and they go, "Hey, show me what you got." And you go, "Yeah, I have to wear a shirt with a cat on Tuesdays. And he has an interest rate. He's going to convert this. And for every first dollar that I make, he gets 40 cents on the dollar until he's paid back."

All the crap that happens, that should never happen. And then here's what that investor says—1 of 2 things: "Good bye." Or "Call your uncle and tell him all this shit's coming out."

[00:27:04] I love what you're pointing to, as not only should you have a very clear understanding of your cap table, but I'm actually having to take away from this conversation with you, Bob, is you should be able to pro forma any investment vehicle very clearly. And it's also an articulation of are you getting legitimate money coming back to you? Are you getting professional funds coming to you, whether from an angel or an accelerator or an incubator or Series A, that they are also able to cleanly articulate "This is what it's going to look like on the other side of my check to you."

[00:27:32] Here's what I would do if I was a startup. And, you know, it's a couple hours of work with a professional—because my cap table right now, it's just like common shareholders. Look at do I have an option pool that's reasonable. Here's some SAFEs that I've already taken. Let's model those out and then let's also model them out on an as-converted basis. So what's it going to look like when it converts.

And then let's put in scenarios. What if it converts at a $6 million valuation. What if it converts at an $8 million valuation? What if it converts at a $10 million valuation? What if we take a million bucks? What if we take 2 million bucks? What if we take $3 million? What if, when we take that new money, the investor says that they want us to increase our option pool because we need to hire a chief sales officer?

That sounds really complicated, but it's not. It's a couple of hours of work. And now you have this incredible living, breathing tool. And then here's the great secret. When you go to raise the money, a lot of people don't have as good of information as you do on your cap table. So when they say, "I want to give you 2 million on an 8, and I want you to have a 10% option pool," and you say, "Actually I think we're worth 10. So I would like 2 on a 10, but I'm willing to give you a little larger option pool." And they might say, "Yeah, that sounds pretty good."

If you know what you're doing, you know the numbers. And now maybe that says it's right behind me—because every point matters. That's when you'd be like, "Oh, by making a trade-off and understanding it better than everybody else, I got out the door and I own 56% instead of 53%." And you can start to do that when you've got things modeled out and you understand it.

It's really—this isn't that hard. I'm—I'll brag. I think I'm one of the top couple hundred people probably in the world at this level. I would appreciate having you here. Yeah. I don't think it's hard. I think it's detailed and nuanced and if you can just understand it reasonably well, you're way ahead of the game and also turns you into a professional.

I think a lot of people want to be an entrepreneur. And do we have a title right here? I don't know, I stole that from someone. Either way though, I think you're on to it.

[00:30:02] I'm so thankful to you for being in the spirit of our podcast and that knowledge transfer. Look, I would say for anybody listening or watching and you're hooked by what this conversation—you want to set yourself up for just avoiding a lot of hassle, avoiding losing a lot of investors or money in the future—go to captableexpert.com. Pick up on what Bob has shared.

Bob, thank you for joining us today. This has been an exceptional added value to our listeners and viewers.

[00:30:22] Super fun, Edgar. And also, if you go to my website—I'm really not here to pimp out my wares. I'm really not. I do coach. I do free sessions all the time. Here's what I want people to do. Don't be an amateur. Be an entrepreneur. You know, if I can help you, great. Always want to go to the website and check stuff out. If you want to check out ChatGPT, I think that's all fantastic.

What I want people to be is be a professional entrepreneur. This is kind of a new thing, right? The last maybe 20 years, so many entrepreneurs. I think I can call myself—when I started my first company in 2001, and I love to bump up against other true professionals. There's a kinship there. And I think that the world's a better place when we're all sort of doing the right thing together.

[00:31:02] That's beautiful. Bob, thank you so much. Have a good one.

[00:31:04] Thanks.