How to Create a Pro Forma Cap Table - Your Basic Guide

As a startup business, one of the most important things you need to learn is how to create a pro forma cap table. Cap tables are simply financial models that projects future growth and profitability.

Cap tables show how much equity each shareholder owns in the company. Creating a cap table will help you raise capital, negotiate with investors, and make sound financial decisions for your business. Plus, it's not as difficult as it may seem.

Read on to learn how to create a pro forma cap table, and learn some tips as well in finessing this tool.

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What is a Pro Forma Cap Table?

Before we learn how to create a pro forma cap table, let's take a quick look at what it is first. Cap tables are financial tools that startups use to plan for their future equity dilution.

It shows how much equity each shareholder will own after future rounds of financing, dilutive events like stock issuances, and other events that can impact ownership.

Creating a cap table is a critical part of the financial planning process for any startup.

It helps founders and investors understand how future events will impact ownership, and can be used to negotiate equity deals, plan for dilution, and track progress towards key milestones.

There are a few different ways to create cap tables. The most important part is to start with a current cap table, and then make assumptions about future events.

Some common events that impact ownership include:

• Future rounds of financing
• Stock option exercises
• Dilutive events like share splits
• Acquisition or sale of the company

Once you've made assumptions about these future events, you can use a tool like Excel to create a pro forma cap table. This will show you how ownership will be distributed after each event.

If you're not comfortable using Excel, there are a few online tools that can help you create a pro forma cap table. One popular option is Capshare, which offers a free trial.

Creating a pro forma cap table is a critical part of financial planning for any startup.

It can help you understand how future events will impact ownership, and can be used to negotiate equity deals, plan for dilution, and track progress towards key milestones.

Why Use a Pro Forma Cap Table?

As a startup, you are always looking for ways to optimize your company. One way to do that is by understanding your company's equity situation through a pro forma cap table.

This tool can help you make informed decisions about fundraising, dilution, and other financial matters by providing a clear picture of current and future ownership percentages.

This tool can be immensely helpful for startups as they negotiate with investors and plan for future rounds of financing.

Once you have your cap table calculation, you can start to analyze different scenarios and see how they would impact your company's equity situation.

For example, you can see how much dilution you would experience in a future funding round or what the effect of issuing new shares would be.

Overall, a cap table is a valuable tool that can help you make better decisions about your company's finances. Next, we try to look at how to create a pro forma cap table, step by step.

How to Create a Pro Forma Cap Table

Creating a cap table can be a daunting task for startup companies.

There are many different ways to create a cap table, but the most important thing to consider is what information you want to include and how to make it easily digestible for your audience.

Here are the basic steps of how to create pro forma cap tables.

1. Understand Securities

One of the first steps in creating a cap table is to understand the different types of securities that can be offered by a company. Common securities include common stock, preferred stock, and bonds.

Each type of security has its own benefits and drawbacks, so it's important to understand the pros and cons of each before making a decision.

2. Valuation

Another key step in creating a cap table is to determine the value of each security. This can be done by using a variety of valuation methods, such as market capitalization, share prices, or book value.

Once you have a value for each security, you can then begin to allocate ownership percentages.

3. Work on the Structure

After you have determined the value of each security and allocated ownership percentages, you can then begin to work on the structure of the cap table.

The structure of the table will vary depending on the type of security being offered, but there are some common elements that should be included.

These elements include the company name, the ticker symbol, the number of shares being offered, the price per share, the type of security, the maturity date, the interest rate, and the coupon rate.

4. Work With Actual Data

Once you have the structure of the cap table complete, you can then begin to fill in the blanks with the actual data. This data can be sourced from the company's financial statements, SEC filings, or other public documents.

5. Add Formatting

After the data is gathered, you can then begin to work on the formatting of the table.

The formatting of the pro forma cap table is just as important as the structure. The table should be easy to read and understand, and it should be visually appealing.

You can use a variety of software programs to help you with the formatting, but it's important to make sure that the final product is professional and error-free.

After the pro forma cap table is complete, you can then begin to share it with potential investors. This can be done through a variety of methods, such as email, social media, or even face-to-face meetings.

It's important to remember that the pro forma cap table is only one part of the investment process, and that you'll also need to have a solid business plan and pitch to convince potential investors to invest in your company.

Tips for Creating an Effective Pro Forma Cap Table

As a startup or early-stage company, you know that a cap table is an important tool to track equity ownership, dilution, and fundraising rounds.

Here's a few more tips on how to create a pro forma cap table that is effective.

1. Include All Pertinent Information.

When creating a cap table, be sure to include all pertinent information. This should include the number of shares outstanding and the price per share.

Include all current shareholders in the model, as well as any potential future investors or employees who may receive equity grants.

This will ensure that all investors have the same information when making decisions.

2. Use Realistic Assumptions.

All cap table calculations are based on assumptions, so it is important that these assumptions are realistic. This will help give a more accurate picture of what the future may hold.

Use realistic assumptions about conversion rates, valuations, and investment amounts to avoid overstating or understating ownership percentages.

3. Tailor the Pro Forma to Your Specific Situation.

Each company is unique, so it is important to tailor the cap table to your specific situation. This will help you make better decisions based on your company's specific needs.

Consider the company's stage of development when determining the level of detail to include in the model. What funding round is it in?

And don't forget, update the model regularly as new information arises to ensure that it remains accurate and up-to-date.

For Angel Investors: Things to Keep in Mind When Using a Pro Forma

When it comes to making sound investments, due diligence is key. This is especially true when it comes to putting money into startups and early-stage companies.

While there are a number of different financial analysis tools available to help assess the viability of a potential investment, the pro forma cap table is one of the most important.

It is important to keep a few things in mind when using a cap table.

First, all assumptions made in the pro forma should be clearly stated and easy to track. This will help ensure that the results of the pro forma are accurate and meaningful.

Second, it is important to understand how different scenarios will impact the results of the pro forma.

For example, what if the company raises additional funding rounds?

What if there is a change in the ownership structure? How does the terms of equity ownership change?

By understanding how different scenarios could play out, you can get a better sense of the risks and rewards associated with a potential investment. Finally, it is always a good idea to run various sensitivity analyses to test the robustness of the pro forma.

This will help you identify any potential problems with the assumptions made in the pro forma and ensure that the results are as accurate as possible. Remember, the pro forma is just one tool among many for making investment decisions.

It should be used alongside other financial analysis tools, such as discounted cash flow analysis, for a comprehensive understanding of a potential investment.

Conclusion: How To Create a Pro Forma Cap Table

As a startup founder, you will need to track your company's equity situation via a cap table. A pro forma cap table is a forward-looking tool that can help you predict how future dilution will impact your ownership stake.

Now that you know how to create a pro forma cap table, put it to good use in your startup business. It will help you raise capital, negotiate with investors, and make sound financial decisions for your company's future.

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