Economics · Capitalization Table Management
Why would an investment firm view a substantial equity holding by a former co-founder who is no longer active in the company as a 'Dead Weight' on the Capitalization Table (Cap Table)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Because non-active shareholders are statutory threats who are presumed likely to initiate competing corporate ventures within the same operating premises.
- 2Because any equity held by inactive employees automatically converts into high-yield debt obligations after twelve months.
- 3Because a large portion of equity is held by an individual no longer contributing to the growth or value creation of the company, which can dilute incentive and demotivate the current execution team.✓
- 4Because former co-founders are legally mandated to assume corporate tax liabilities for the startup for the subsequent decade.
Correct answer
Because a large portion of equity is held by an individual no longer contributing to the growth or value creation of the company, which can dilute incentive and demotivate the current execution team.
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