Decoding Capitalization Tables: The Healthcare Founder’s Map of Ownership, Dilution, and Control

For healthcare founders, few documents carry as much weight as the capitalization table. More than a spreadsheet of names and numbers, the cap table maps out who really controls the company, how equity shifts through each funding round, and where potential conflicts or alignment might surface. The table is key to how investors will evaluate a startup’s dilution, decision-making power, regulatory strategy, and long-term value creation.

“A lot of times cap tables are thought of as a breakdown of who has what,” Nell Smircina, DAOM, Search Fund Principal at Novastone Capital Advisors, told Cure. “But they also show different percentages of ownership, reveal alignment, and potential friction points in the company’s future.” Capitalization tables, or cap tables, give an overview of a company’s ownership percentages, stock options, and timelines for vesting and dilution.

Why Dilution Matters for a Startup

Investors use cap tables to assess dilution risk, preferred stock rights, and return potential.

In biotech and healthcare, startups usually have multiple rounds of funding before the generating revenue. Each new raise issues additional shares, diluting the ownership percentage of existing shareholders.

“Having an understanding upfront about what that dilution is going to look like and what the control is going to look like is critical,” Smircina said.

Dilution is about value erosion or growth, and it’s built into your capital structure, Vivian Cervantes, Senior Vice President of Healthcare for Investor Relations at CORE IR, told Cure.

For instance, she pointed to this scenario:

• A company starts with 100 shares worth $10 each.

• To fund a promising clinical trial, it raises money by doubling shares to 200.

• Now, each share might be worth $5, unless sentiment shifts and selling pressure pushes them down to $4 (or the opposite can happen, pushing price up).

That’s the risk. But, Cervantes said, hitting value-creating milestones changes the picture.

“Even if you now have two $4 shares, you might turn them into two $6 shares. You’re still ahead of the game,” she said.

Ownership Reveals Decision-Making Power

From an advisory or investment perspective, Smircina looks to the cap table to show concentration of ownership and decision-making authority.

“If it’s too fragmented, then it’s not clear who is making decisions and that can indicate potential for friction when it comes to making decisions,” she said. “Ownership percentages can show who is really in control of decisions and how incentivized the team is to grow value in the company.”

Some of those decisions address the complex environments that startups must navigate carefully to thrive. Medtech, biotech, pharmaceuticals and care delivery companies exist in a highly regulated healthcare sector. They have to follow specific regulations related to HIPAA and FDA, for example, and cap tables help show who the owners have complied to such rules. This is often the case with international investors or strategic partners.

“I also look out for any type of liquidation preferences or convertible instruments [because] that would change a structure as rounds are moving forward because they can wipe out certain common shareholders if the company isn’t doing well,” Smircina said.[M1]

Valuation and M&A Strategy Prove Important

As a startup scales, it can collaborate with partners, make acquisitions, or even go public. During such deal making or the Initial Public Offering (IPO), the company’s cap table lays out how proceeds will be distributed. The cap table also reports how the company’s anti-dilution protections, vesting schedules, or liquidation priorities, all of which are common in biotech exit deals.

“The cap table becomes a roadmap for how proceeds will be split, but also is a signal of how well the company was structured over time,” said Smircina.

Investors look closely at things like liquidation preferences or participating preferred shares, especially in biotech, where capital requirements are high and multiple funding rounds are common.

“A messy or unclear structure can create friction or stall things,” Smircina said.

Transparency of IP

Healthcare and biotech companies often are structured around the development of intellectual property (IP), legally protected innovations. Frequently these discoveries occur in academic institutions, which patent and then license the innovation for further development by a company. Sometimes, the scientist-innovators turn entrepreneurs and establish their own company to carry forth the development.

How the company defines the ownership of the IP, such as drug or device patents or proprietary algorithms, is covered in the cap table, Clear documentation around who contributed IP, especially when it originates in academic settings, is essential, said Smircina.

“If the chain of ownership isn’t well accounted for on the cap table, it raises red flags in diligence. Investors want to know that the company has clean rights to its core assets, without any potential disputes or unresolved equity promises,” she said.

Incentive Planning for Attracting Talent

Recruiting qualified scientists, clinicians, and executives often means offering competitive equity packages. The cap table is the blueprint for designing stock options and employee ownership without over-diluting founders or early investors.

Because of this information, cap tables can be talent strategy tools, said Smircina.

“This is particularly important in healthcare and biotech, where the right scientific or clinical expertise can make or break the company. Smart equity planning helps attract top-tier talent while preserving founder alignment,” she said. “I’ve always preferred companies that have thought ahead about their option pool and what it’ll take to build a world-class team.”

[M1]These two paragraphs jump from Decision making and compliance to liquidation preferences without a bridge. Does the liquidation info belong with the next section?