Pro forma cap table: modelling the round before you agree the terms

A pro forma cap table models what ownership looks like after a proposed financing, given the terms on the table. It is the calculation that turns a term sheet into a number a founder can actually evaluate, and it is where the difference between two apparently similar offers usually appears.

Founders routinely compare offers on valuation and cheque size alone, which is the one comparison the structure is designed to complicate. Two term sheets at the same pre-money can produce materially different founder ownership depending on where the option pool sits and how earlier convertibles behave.

The three mechanics that decide a pro forma cap table

• The option pool. A pool increase agreed as pre-money dilutes existing holders only; agreed as post-money it dilutes the new investor too. This single choice frequently moves founder ownership by several percentage points.
• Conversion of earlier instruments. Notes and SAFEs convert on their own terms — valuation cap, discount, or the better of the two — and they convert into the round, taking their share of it.
• Whether the conversion is included in the pre-money valuation or sits on top of it, which changes who absorbs the dilution.
• And the arithmetic order in which these are applied, which is not universal and should be agreed explicitly rather than assumed.

Model the offers side by side

The comparison worth making is not valuation against valuation but resulting ownership against resulting ownership, with each mechanic stated. Building one workbook with a column per offer, computing post-round percentages for founders, employees, prior investors and the new investor, makes an unfavourable structure visible in a way that reading the term sheet does not. It also gives you something concrete to negotiate with, since most of these mechanics are negotiable and the request is far more credible when accompanied by the arithmetic.

Model the pool as it will actually be used, not as it will be created. A pool sized to cover two years of hiring is a real cost to existing holders; agreeing a large pool without a hiring plan behind it is giving away ownership for nothing.

Show the scenarios you are worried about

The same model answers the questions that arrive later: what a bridge on these terms does to the next round, what happens to ownership if the round closes at the bottom of its range, and what the liquidation preference means at various exit values. None of that requires sophisticated modelling — a few columns and honest assumptions — and running it before signing is considerably better than discovering it at an exit.

Keeping the model with the record

Ettex Sheets holds the scenarios side by side with the assumptions written into the sheet rather than held in someone’s head, and Ettex Records keeps the term sheets and executed documents each scenario refers to. The current ownership it starts from is covered in cap table, and the valuation constraining option pricing in the same round is covered in 409a valuation.

To be clear: this is a spreadsheet, not a modelling product, and none of it is legal or financial advice. Term sheet mechanics have legal effect, and a lawyer who does financings for a living will spot in ten minutes what a spreadsheet takes a week to reveal.