Now that you’ve formed your business and you and your fellow founders are hard at work building your startup, if you are like most burgeoning businesses, at some point you will need an injection of cash to keep the lights on and the engine running.  But as founders of an early stage private company, you often have limited cash resources at your disposal. As such, your first foray into raising outside capital needs to be efficient and cost-effective.

“Fully Diluted” is a phrase often thrown around when discussing a company’s capitalization. But what does it really mean? Understanding your company’s capitalization is critical during any stage of the company’s lifecycle, not only to maintain an intimate understanding of current overall ownership, but also as a way to gauge whether a potential investment is worth the equity you’d be giving up in return.

To succeed as an entrepreneur, there are many laws which you need to be aware of, including “Blue Sky Laws.” In the United States, Blue Sky Laws are the securities laws of the individual states, and they reflect the ways each state regulates the offer or sale of “securities,” or the trade of financial assets such as stocks, options, or bonds.

As an entrepreneur, you are no stranger to making key decisions for the growth of your business as you secure your team, build out your business plan, and seek funding to scale. It goes without question that one of the more monumental decisions will be determining when to raise venture capital. After you make the determination to raise venture capital, you will spend time pitching your business and product to venture capitalists to seek out potential financing partners and investors.

You need others to help build your business, but as you build your team, it is important to distinguish the different roles in your corporate structure. Are you dealing with co-founders with whom you started the company? How do you divide up the equity? Do you have a board of directors, and if so, who is on it? Did the board appoint any officers? Do you need to hire employees, advisors, or contractors to help carry out the company’s objectives? Answering questions such as these is essential to running an efficient and successful corporation.

You may be thinking to yourself – why do I care about learning how to calculate issued and outstanding shares; I know how many shares I own, isn’t that enough? While knowing how many shares you own is helpful, your company’s capitalization table (“cap table”) is critical when raising money and understanding exactly how equity is allocated.