The moment a VC firm decides they are genuinely interested in a startup, one of the first documents they request is the cap table. Not a summary. The actual cap table: every shareholder, every option holder, every convertible instrument, every class of shares, all the way from the founding team to the most recent round. What they find in that document in the first 20 minutes of due diligence shapes their confidence in the founders for the rest of the process.
A clean cap table does not mean a simple cap table. Complex cap structures are normal as companies mature. A clean cap table means a complete, accurate, internally consistent record of ownership that can be reconciled against the company's official shareholder register (kabunushi meibo) and, where applicable, the corporate registry (touki).
What investors are actually checking
Investors reviewing a cap table are looking for several specific things. First, they want to confirm that the founding team's ownership structure is what was represented during the pitch. Second, they want to see the current dilution picture: how many shares outstanding, how many options issued and outstanding (not just authorized), and what the fully diluted share count is.
Third, they want to trace every share issuance back to a board authorization. In Japan, share issuances and option grants both require board approval under the Kaisha-ho (Companies Act). An investor who sees 50,000 options in the cap table will ask to see the board minutes authorizing those grants. If those minutes don't exist or are incomplete, that is an issue.
Fourth, for convertible instruments, they want to understand the conversion mechanics. How many shares will a convertible note or J-KISS convert into at this round's valuation? Are there caps, discounts, or other terms that affect the dilution calculation? An investor doing their own cap table math that comes out differently than yours is a red flag that triggers deeper scrutiny.
The Japan-specific documentation layer
Japanese startups face a documentation requirement that US-incorporated companies do not: the official corporate registry and the shareholder register are distinct documents, and both need to be current. Share issuances that are reflected in the internal cap table but have not been registered with the Legal Affairs Bureau (Homukyoku) create a mismatch that investors notice immediately.
There is also the zeisei-tekikaku documentation layer for option grants. Each grant requires a written agreement that meets the specific statutory requirements under Article 29-2. The board resolution authorizing the grant must include specific language beyond what a generic board resolution template provides. An investor doing equity due diligence who requests the underlying option agreements and finds that they are missing key terms will begin to question whether the options will actually receive qualified tax treatment at exercise, which affects the incentive value of the option pool from their perspective as well as the employees'.
The most common issues we see
Working with startups that are preparing for fundraises, we see several categories of cap table problems come up consistently.
Advisor grants are the most frequently underdocumented. A company that has six advisors with option grants and can only produce written agreements for four of them has a gap. The missing agreements may represent real grants, but without documentation, their status is unclear. Resolving this before due diligence means either locating the agreements, having them re-executed with the original grant date if both parties agree, or acknowledging the grants as non-qualified and accounting for them accordingly.
Convertible note math is another common source of discrepancy. The terms of a convertible note or J-KISS instrument may have been negotiated years ago, and the person who negotiated them may no longer be at the company. If the current cap table does not correctly model how those instruments will convert at a given valuation, the cap table will not reconcile with the investor's model. This is fixable, but it requires going back to the original agreements and working through the mechanics carefully.
Former employee options are frequently mishandled. When an employee with vested options leaves the company, there is usually a post-termination exercise window, commonly 90 days. If the company does not track whether former employees exercised within that window, or if the cap table has not been updated to reflect forfeitures, the outstanding option count in the cap table may be overstated. An overstatement of this kind inflates the fully diluted share count and understates investor ownership.
How to think about cap table cleanup before a fundraise
The right time to clean up cap table issues is not during due diligence. By that point, any issue you find will be noted in the investor's diligence record and may require a warranty in the investment agreement. Cleaning up before you start pitching means issues get fixed quietly, with no investor visibility into the fact that they existed.
A practical cleanup process starts with reconciling your internal records against the official shareholder register. If there are discrepancies, trace each one to its source. Then pull every option agreement and confirm that each one matches the option register. Finally, model out the fully diluted cap table at the expected valuation of the upcoming round and confirm that the dilution calculation gives you an ownership structure you can defend in the pitch.
This is not a weekend exercise for a company with 30 option holders and two rounds of convertible instruments. It is a deliberate documentation audit that typically takes two to four weeks when done properly. That timeline needs to be factored into your fundraise preparation schedule.
The ongoing maintenance question
A clean cap table that is allowed to fall behind over the next 18 months will present the same problems at the following fundraise. Cap table hygiene is not a one-time cleanup; it is an operational practice.
Every grant, every forfeiture, every exercise, every share issuance, and every convertible note conversion needs to be reflected in the cap table within a reasonable time frame, with a reference to the underlying documentation. A company that has that discipline in place will find fundraise due diligence much less stressful than one that reconstructs the cap table in the weeks before a pitch.
The tools you use matter here. A spreadsheet that one person maintains, with no audit trail and no permission controls, is brittle. When that person changes roles or leaves, the institutional knowledge about which cells contain formulas, which convertible instruments have been accounted for, and which option grants were issued informally goes with them.
