Diligence will find every flaw in your cap table. The only question is who finds it first.
If you find an issue yourself three months before the buyer does, fixing it costs a fraction of what the buyer will extract once it surfaces in the data room. By then it comes back as a price adjustment, an escrow or a special indemnity. These are the six areas I’d audit before any buyer sees your cap table.
Dead equity: Departed founders who still hold unvested or accelerated stock, orphaned advisor grants and warrants from a bridge round everyone has forgotten. Each is a signature you’ll need at closing. Settle or repurchase them before the LOI, while you’re not negotiating against a deadline.
409A and option history: Missing or stale 409A valuations, options priced below the 409A value at the time of grant, and grants approved verbally but never papered. Each is a Section 409A problem for the holder and a withholding-tax exposure for the company.
Undocumented equity: Side letters between co-founders, verbal advisor grants, restricted stock without an 83(b) election and 83(b)s filed late. I regularly see promised equity that lives in nothing but a Slack message. Missing or improperly filed 83(b) elections on founder stock are also among the most common findings in diligence.
Drag-along mechanics: Confirm the drag actually works as drafted. The voting thresholds need to be achievable class by class, the notice periods need to fit your closing timeline and the carve-outs need to line up with the actual deal structure. A defective drag turns small holders into hostage-takers at the closing table.
Consents: Map every consent you’ll need: charter-level supermajorities; contractual approvals under your investors’ rights, ROFR and voting agreements; spousal consents in community-property states; and the logistics of a 280G shareholder vote. Identify now who’s going to be hard to reach.
The option pool true-up: Most LOIs are silent on whether the unallocated option pool comes off the buyer’s price or off seller proceeds. Founders who don’t model it discover at signing that the pool sits on their side of the waterfall. That can easily be a seven-figure surprise.
Why now
None of these problems gets cheaper with time. Before the LOI, you fix them on your own schedule and at your own cost. After the LOI, every one becomes something the buyer prices, and the buyer decides how much.
Ahmed Hasan is the founder and CEO of Venture Bridge Law, a corporate and M&A boutique. This article is general information, not legal advice.