Notes

How To Create A Pro Forma Cap Table
A pro forma cap table is an excel spreadsheet that presents the current equity structure of an organization as of a prospectus and post potential future investment. The spreadsheet synthesizes financial information of the organization to summarize the current asset value, the percent ownership by investors, and the potential dilution over future time. It is intended for the investor to analyze the reasons behind the current holdings as well as the long term potential returns on investment for the organization. It can also be used for setting investment goals and to set financial objectives for the organization.

There are several differences between the real and financial results presented in the pro forma cap table. startups would have to evaluate whether the price per share presented is actually an accurate representation of future earnings per share based on historical data. It must also evaluate the present stock price to determine if the price per share of the common stock is fair to market or not. It is not a necessity that the present price per share is necessarily equal to the future adjusted cost base price per share, as it is possible that the present price per share may change significantly in the future. Historical data on financial performance of the organization is available for some companies but not for all companies. If the historical data is not available, it is necessary for the investor to estimate the prospective costs based on current information.

One of the many advantages of using an excel spreadsheet to create a pro forma cap table includes the ability to use rounding. This capability allows the investor to indicate the rounding to the nearest whole number. Investors should make sure that they understand the significance of rounding and how it affects the reported results. Investors should also be aware that the rounding procedure may result in small errors.

The second advantage of creating a pro forma cap table involves the use of a dollar figure to indicate the ownership percentage. Investors should be aware that the purpose of these tables is to provide a means to calculate future capital gains and losses that will be based on ownership percentages of shares of common stock. For example, if 100 shares of common stock are owned by a shareholder and the dividend rate is 40 percent, then this shareholder will report a gain of one thousand dollars. If the same share is sold for the same price, then this investor would report a loss of twenty thousand dollars.

The third advantage of using an excel spreadsheet to create a pro forma cap table includes the capability to determine if financing rounds are necessary. When financing rounds are required, investors need to obtain additional funds to pay the outstanding debt and capital dues. In startups to determine if financing is necessary, an investor will need to subtract the current market price of the stock from the reported price in order to determine the amount needed to pay back the debt and capital dues. The spreadsheet can then be used to determine if additional funds are required.

One of the most important advantages of using a pro forma cap table to calculate the value of common shares is the accuracy that it provides. Investors who rely on broker quotes and cost per share information will find that these reports are not accurate. These estimates will often times be inaccurate because they are based on limited information. Investors must have access to the full market price in order to calculate accurate costs per share. This means that investors must be able to obtain market information in order to calculate accurate premiums.

In addition to using a pro forma cap table to calculate capital gain and loss requirements, an investor will also want to create a pro forma cap table that is used to calculate the termination prices of investments. This is especially important for IPOs and spin-offs because the initial public offering price can become outrageously high. Once an investor realizes that the offering price is too high, it will be difficult for the investor to sell the stock at a profit. Investors must create a pro forma cap table that is specifically designed to calculate exit prices for these types of securities.

Finally, when it comes to calculating the value of equity during an IPO or acquisition, an investor should consider the effect that financing will have on the value of ownership. When financing is acquired, new investors will purchase shares from the company at a lower price. The ability for new investors to buy shares at a discount can make buying an IPO more affordable for an investor.
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