How Cake calculates your Rule 701 position

Cake measures your company against all three Rule 701 limits automatically, using the grants on your cap table. This article explains how each grant is valued, which grants count, and what happens when data is missing, so you can read your position with confidence.

How each grant is valued

Cake values each Rule 701 grant by type. The grant value feeds the dollar limits (Tests 1 and 3) and the $10M disclosure threshold.

Grant type	How Cake values it
Options	Strike price x shares granted (strike is the 409A fair market value)
RSAs	Higher of purchase price or 409A fair market value at grant date, x shares granted
RSUs	409A fair market value at the grant date x shares granted

For RSAs, Cake uses whichever of the two figures is higher. An RSA is purchased, so the price paid usually applies - but if the shares were bought below their 409A value, the difference is treated as compensation, so Cake uses the 409A value instead.

Which grants count

Rule 701 looks at when a grant was made, not what happened to it afterwards. Cake counts grants like this:

Active - counts
Exercised - counts (the grant date is what matters, not the exercise date)
Lapsed or expired unexercised - counts
Cancelled or forfeited - does not count (shown in your grants list but excluded from totals)
Repriced - the original grant is excluded; the repriced grant counts as a new grant from its new date

Choosing which grants count: the "Count toward Rule 701" setting

Rule 701 only covers equity you grant as compensation for work. Equity you issue to raise money does not count toward your Rule 701 position. Common examples are shares sold to investors, or founder shares bought at incorporation.

Every grant has a Count toward Rule 701 setting, on by default, so the grant is included in your count. Each incentive plan has a matching Count new grants toward Rule 701 default that applies to new grants in that plan. You can switch it off on any individual grant.

Cake counts all your existing grants by default. If a grant should not count, such as founder shares or investor equity, open the grant and switch off Count toward Rule 701. It then drops out of all three tests and the $10M threshold. This only changes your Rule 701 count, not the signed grant terms.

The tracker counts grants issued under an incentive plan. If you have granted equity as compensation outside a plan, count it separately and check your position with your securities counsel.

Test 2 compares shares issued under Rule 701 against your total outstanding shares. The denominator is your issued-and-outstanding common shares, counted as-converted from preferred. It excludes options, warrants, and the Rule 701 shares themselves.

When a 409A is missing

If no 409A valuation covers a grant's date, Cake cannot value that grant. The grant shows as "FMV missing," your running total becomes a floor only, and your tracker shows "Incomplete data." This resolves automatically once you add a covering 409A under Compliance > 409A Valuations.

Entering your total assets (for Test 3)

Test 3 compares grant value against your total assets. Cake does not hold your balance sheet, so you enter your total assets manually. Enter 100% of your total assets - Cake works out where your grant value sits against the 15% limit. Cake stores each entry with the date and uses your most recent figure. If you have not entered total assets, Cake cannot show your Test 3 position and prompts you to add it.

What Happens Next

Add or update grants and your position recalculates automatically across all three limits. If your data is incomplete, resolve the flagged items (usually a missing 409A or a total assets entry) and your position updates.

Important: If you are approaching the Rule 701 limits, or think you might exceed them, speak with your securities counsel about your obligations before granting or exercising further.

What is Rule 701? - the exemption and the three limits, in plain language
What is the Rule 701 disclosure rule?
Add a 409A valuation - resolves "FMV missing" grants